O2micro International Ltd (OIIM) 2009 Q2 法說會逐字稿

Good day and thank you for joining us today to discuss O2Micro's earnings for the second 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 on O2Micro's website at www.o2micro.com. There will be a replay available through August 5, 2009 at 9:59 PM Pacific Time by calling 888-203-1112 or 719-457-0820, passcode 9224276. Following the presentation by management, the conference call will be open for questions and answers as time permits.

Gentleman, you may begin.

Good morning and thank you for dialing into O2Micro's second-quarter financial results conference call for the period ending June 30, 2009. This is Gary Abbott, Director of Investor Relations.

I would like to remind listeners that the discussion of business outlook for O2Micro contains forward-looking statements. Statements made in this release that are not historical facts are forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially due to numerous risks factors. Such risks factors are enumerated in the Form F-1, Form F-3 and 20-F reports and other documents filed with the SEC from time to time. Listeners are referred to the O2Micro earnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors.

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 & Marketing and Director, James Keim, and Sterling Du, O2's Founder, CEO and Chairman.

Today Mr. Kuo will highlight operating results and projections, followed by Mr. Keim. He will provide market highlights, and closing comments to be made by Sterling Du. After some introductory remarks from these gentlemen, the floor will be opened for your questions.

Now I would like to introduce Perry Kuo, CFO of O2Micro, for a discussion of the financial highlights of the second quarter ended June 30, 2009.

Thank you. This is O2Micro's quarterly conference call. This call will cover our financial results for the second quarter of 2009. We will now review our financial results for Q2 2009.

Please know that actual results will be presented on a non-GAAP basis unless we designate otherwise, and I will results as (inaudible) stock-based compensation, expense and one-time nonrecurring charges. Our full GAAP results are available in our press release that was issued a moment ago.

GAAP revenue in the second quarter of 2009 was $34.6 million. It is above the $34 million range of our preliminary results that we announced on June 15, 2009. In Q2 our IC revenue was $33.9 million, and our security revenue was about $700,000. GAAP net loss in the second quarter of 2009 was $500,000. If we exclude stock-based compensation of $954,000, the non-GAAP net income would be $449,000. GAAP net loss for ADS in the second quarter of 2009 was $0.01. Non-GAAP net income for ADS was $0.01.

Gross margin was 58.8% in Q2. The gross margin is within our 55% to 60% target range. The gross margin was strong due to higher revenue and good product mix. Our new products tend to have higher gross margins, and we are happy with their performance.

R&D spend was $7.7 million or 122.1% of revenue. This amount includes stock-based compensation expense of $334,000 in the quarter. SG&A spend was $11.8 million or 34.2% of revenue. This amount includes stock-based compensation expense of $620,000.

Income tax was $347,000 in the second quarter and is mainly based on the effective tax rate of each taxable location for the prior year. Q2 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 less than 5% of revenue.

At this point I would like to provide some additional information. O2Micro finished the second quarter with more than $115.1 million in our restricted cash and short-term investments. This represents cash and cash equivalents of $3.11 for ADS. In addition, O2Micro has no debt.

Accounts receivable at the end of Q2 was $14.3 million. Our DSO is 34 days. It is better than our target range of 40 to 60 days, and it compares favorably to our DSO of 44 days at the end of the Q1 2009.

Q2 inventory finished at $13.3 million. This increased slightly from $13 million in Q1 2009. O2Micro finished the second quarter with 83 days of inventory, and inventory turned 4.3 times in Q2. This is also a significant improvement from 128 days and 2.8 turns at the end of Q1.

From a cash flow perspective, we generated $9.2 million in cash inflow from operating activities in Q2. This was primarily due to improvements 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 receivables and the inventory to try to optimize our cash flow while we rent out the business under the current market status. Capital expenditure was $223,000 in the second quarter and were mainly driven by equivalent purchases.

Depreciation and amortization was $1.5 million in Q2. At the end of the second quarter of 2009, O2Micro had 838 employees. 66% of which are engineers. This positions us well for new product development and allows us to maintain our technology core advantages, which leads into new design wins and high gross margin business.

At this time I would like to provide our financial guidance for the third quarter of fiscal year 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.

O2Micro estimates that Q3 revenue should be up some sequentially by approximately 5% to 10%. We are guiding the Q3 gross margins to a range of 58% to 60%. 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 Q3. The slight sequential increase is due to higher R&D for some key projects.

SG&A should be $11.5 million to $12.5 million in Q3, including stock-based compensation expense. The more sequential increase in our SG&A is still entirely to (inaudible) cost for our IPC action. These costs are high in the near-term as we approach our trial in October 2009. After the trial we expect SG&A to begin to normalize back to our run-rate of $8 million to $9 million. This should give us a lot of operating leverage in the future.

Stock-based compensation should be in the range of $800,000 to $900,000 in the third quarter. Based on the service income of our subsidiaries in different countries, we expect our take amount to be in the range of $450,000 to $550,000 in the third quarter.

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 experience and 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 to turn the call over to Jim Keim to talk more about our business.

Thank you. In the midst of worldwide economic uncertainty, we have been discussing Q2 as being a critical quarter for some time. In February we stated that, "Q2 may begin to bring some normalcy to the electronic markets with inventories having been fully corrected. This will enable more accurate projections of business going forward."

In April we stated that, "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 security."

By carefully managing our business based on these expected trends, we have been successful in not only growing our LCD TV business but rapidly expanding our new product designs and continuing to expand into new markets. Let me briefly comment on both these situations.

The significant upswing in our LCD TV business was coupled with a consolidation and supply base. Both OEMs and suppliers to these OEMs have become more selective in choosing financially strong suppliers which helps consolidate business and eliminate secondary IC competitors. This is a significant advantage to us as the recognized market leader. We continue to significantly expand both our product offering and intellectual property portfolio in LCD TV and the entire Intelligent Lighting market.

Our rapidly expanding LED product offering is capturing an increasing percentage of our total lighting revenue and now represents in excess of 20% of lighting revenues. Our growing revenue in industrial, communications and automotive markets is the direct result of our marketing and R&D efforts to expand our product offering into these new markets with a significantly expanding customer base. This expansion into new markets includes product areas, including Intelligent Battery, Intelligent Lighting, Intelligent Power, and security products. We believe that our new products will continue to constitute a growing percentage of our overall business.

We also continue to focus on new products for the computing market where we believe we can grow our leadership role in next generation notebooks and netbooks. While leading economists still view the overall economic situation as challenging, we continue to see significant opportunities in Power Management and security products quickly evolving from the situation. Both companies and governments are now focused on rapidly evolving energy-efficient technologies that require sophisticated Power Management solutions in which we have leadership positions. We continue to see growth in new market opportunities even under these economic conditions. We believe that we are extremely well-positioned in Intelligent Power management and security products 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 onto Sterling Du, CEO and Chairman, for closing remarks.

Thank you, Jim. We are pleased for our Q2 2009, which achieved 47% revenue growth quarter-over-quarter to the $34.6 million level. Our significant growth shows a healthy core 19 business, as well as 19 products and increasing into industrial applications. Also, our DC/DC power group market share is increasing in a netbook computer.

Now let us highlight some major trends driving our end markets. We are benefiting from a change from CCFL to LED tech lighting because our LED driver chips typically carry higher ASPs and the higher gross margins. We leveraged and extended our success of CCFL to White LED. We are pleased to see White LED penetrate to some LCD TV and LCD monitor, while significant content will increase with larger panel size. This LCD TV market is resilient and has rebounded significantly over the past few months.

In this economy people are staying home more, which helps LCD TV sales. In addition, the LCD TV market was driven by the Chinese market as the Chinese domestic economy was activated by government economy stimulus plans and also from a purchase subsized for energy saving plans.

Netbook computers is also one of the fast-growing segments of mobile devices. Both China Mobile and the China Telecom still use those 3G netbooks instead of 3G cell phones. Netbooks usually come with 10 inch or less panels with a small form factor that is easy to carry, and it plays a major appealing role. Another appealing feature is the (inaudible) operating time can reach up to six to eight hours with regular usage. Our high power efficiency DC/DC, White LED driver and conventional CCFL inverter help customers to extend battery operating time. And our proprietary Cool Charge technology continues to get design wins because it gives a better [server] control in a netbook.

Our full-line power trip DC/DC charger and a battery (inaudible) solution provides total solutions for the notebooks and the netbooks. Additionally the netbooks segment is the fastest-growing sector of computer end markets and is mostly the new basis to O2Micro because it is a young market. This is why we can overcome an economy because we can wrap a new product with an additional silicon content into a new market sector of O2Micro.

Our industrial products are also showing good performance. Our penetration into applications for lithium-ion battery is increasing. At the same time, our industrial sales of 19 products, especially for the automotive industry, are on track. We are also continuing to work with automotive industries to bring our self-balancing battery [gas gauge] product to this important market to drive revenue growth in the future.

Our communication product lines are also good long-term revenue drivers. These products include a full line of network security openings. They are growing nicely from year to year and are getting good traction in Asian markets. Our products have won many awards, and we have newly announced IPv6 protocol support, and that places us in the most advanced position in the market.

In conclusion, given these global economies are weak, we prepare for the slow economy recovery by carefully controlling expenses and design for proprietary [high entry barrier] products to the market. In order to maintain our gross margin, we believe our position in the strongest end markets, our positioning in the fast-growing markets, and continue to offer new products into the new market will enable us to success.

At this time I would like to thank you for everyone for participating in our call, and I will turn the call back to the Gary Abbott.

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

(Operator Instructions). Vernon Essi, Needham & Co.

Strong revenue there. Nice job. I wanted to ask about a couple of things here first off on SG&A. Just give us an understanding of your litigation situation, and you've said the baseline beneath this SG&A line is probably in the $8 million to $9 million. Are we to assume that things came in a little bit worse in the June quarter because I think you guided a little bit lower on that? And what is your confidence that you are going to make this window that you are giving us for the summer quarter? You have got a trial coming up, and can you just kind of discuss that a little more in detail?

This is Perry. I think this is our lumpy legal costs for the ITC case. We had more activities in the June quarter.

Okay. So I mean, I guess the question is, what gives you confidence that you are going to not be higher than 12 -- I mean your upper end of your window for next quarter is $12.5 million on your SG&A --

Yes. Based on the current estimate, we see a schedule and also activities. So we think it will be in the area of $11.5 million to $12.5 million for the third quarter.

It is lumpy, to be precise, within $0.5 million. We tried to capture that.

I guess it's obviously -- (multiple speakers)

This quarter was a little higher, true. Last quarter was probably a little lower.

I mean is it safe to assume that if we backed out your legal, you would have your SG&A in sort of this $8 million to $9 million range for the current quarter?

Absolutely.

Okay. And then just if you could talk about it in general -- it is probably more in your camp, Jim -- just the overall computing supply chain and what you see going on behind the scenes, how are inventory levels -- the industry was sort of hand to mouth a couple of months ago. Have things changed from your perspective?

Well, again let me comment that we do not have a distributor channel in between like some companies do, which gets to be particularly important when you are dealing with the China market where most of the netbooks business actually is. And so since we are dealing direct, we have not seen significant inventory issues nor significant changes in that market. We do feel we have a very good penetration level in netbooks across a variety of product lines, and we do expect netbooks to continue to ramp through the year.

That is fair enough, but I guess I understand that you are obviously in a direct relationship. But the concern could be here that you have had a very robust ramp on a production basis beyond the customers that you have in Taiwan that are shipping into the next step of that channel. What is your sense that there is product that is being adequately absorbed as we go into the end of the summer? And what does the back-to-school season feel like here in the Western economies and then also just in general the enterprise spend, and what is going on from a (inaudible) perspective?

Well, basically the market has been surprisingly stable throughout the year, even going back into the early parts of the year. And what we have actually seen in some areas such as the netbooks area is that Intel actually took on some allocation of processor product, which has actually been very easy for us to track. So that has actually made our life easier on this end, and we do not feel that we have any inventory build going on. We do see sales worldwide very good. There could be some softness certainly in the so-called back-to-school market in the US, but we do not expect that to afflict us to any significant degree.

Okay. And then finally, just on the -- I'm sure you could not escape your Q&A without having some questions about LED. I'm wondering maybe, Sterling, you talked about this a little bit, but if we look at the current markets, obviously the smaller screen sizes is where the adoption rates have been the highest and most robust. If you looked forward into the television market, how do you see that evolving, and more importantly, are you directly participating in any LED backlighting solutions in the larger monitor sizes and into the television market? And where do you think that is going to land over the next couple of years in terms of penetration rates?

So the reason White LED has been a takeoff nicely in the past couple of quarters is the 30 million White LED in a very good price performance ratio. That is reduced by a lot of Asian-based LED manufacturers or foundries, whatever you call it. So there is a very completion of the supply chain attribute to allow for a light bar to the LED lighting itself, and so it is a margin maker. And that you see the small screen, the price difference between CCFL and White LED narrowed down. And that is really driven by this so-called 30 million low power White LED.

Now we talk about television, television with several different starting points. The early days -- our early phase is driven by RGB, White LED, and (inaudible) providing very high quality lighting, which is commanding a full spectrum like sunlight. And that kind of stunning performance is very good to view, but the price tag is something that is not going to become mainstream.

Now what we observed right now is really the LED TV. That is what we call it, which LCD TV equipped with White LED we call LED TV. And LED TV is going to be -- we observed that it is going to become mainstream as it is going to become affordable. So you're going to see a variety of LED TV offerings in this Christmas season. You probably range it from high-end from Samsung. It is called next-generation lighting. But the majority will be in the affordable range, which has utilized the 30 million White LED, and that is not providing as strong as broad a spectrum as RGB or even some very high-powered White LED. And the 30 million White LED is providing better resolution than CCFL, providing a lower power because it is not high strong LED unit itself. And those we are going to see is going to be major in the mainstream. And also the volume of 30 million White LED is going to also be a very major production of volume discounts is going to happen. So you are going to see that very popular.

And thus, White LED -- the 30 million White LED internal issue is a Blue LED; it is just recoding in White. And that is not going to be in early -- as good as an early-stage television for LED. But this kind of LED TV is going to be very popular, and the module designers will be the same people designing for the LED monitor designed for the netbooks. They will be the same margin maker, and then that television set is going to be very popular also in China as well because of the high growing market. And by saying this, we are in a very good position for the supply chain for either margin maker or the existing LCD TV makers, which today they are using CCFL, and every one of them either in Korea or in China or in Taiwan, they all have some project that is aiming at this LED TV. And we are not absent from the pioneer projects. So I do think that this Christmas upcoming you will see some of our products and in some affordable LED TV sector.

And then just currently right now, what would you characterize -- however, you want to define this; let's just say from a module perspective -- what is the largest screen size that you are currently designed into on an LDD solution?

That I don't have the immediate data. But the people trying to do that in TV area is they try on 42 inch. That is quite a large size already.

But what would be your largest screen size, though? Are you in the 20 inch and above bracket yet with LED, or are we still talking kind of the monitor side?

Yes, we are up to -- right now we have projects running like 42 inch right now. It is very -- (multiple speakers). So there is no limitation for our technology. We are talking the light bar.

Tore Svanberg, Thomas Weisel Partners.

Yes, if we look at the 50% sequential growth, how would you split that between, let's say, end markets coming back and your own efforts in new products and perhaps share gains starting to play out?

Well, I think it is a combination of those. Certainly we have seen as we've discussed the LCD TV market continuing to ramp up from where it was in previous quarters, and obviously we are participating heavily in that.

At the same time, we are getting a good mix of new product design wins, including our Intelligent Power product, which has done very well in new notebook designs and very strong performance in the new netbook area. We are also seeing, as is indicated by the numbers significant growth in the industrial area, and that comes from a mix really of many product lines going into various industrial, as well as automotive programs.

So it is really -- we consider it to be a very healthy mix of new designs that are going into traditional products where we think we are gaining more market share, we are maintaining very good market share in the LCD TV, and then driving broader market design, particularly in industrial and automotive.

Great. And your gross margin was up about 300 basis points sequentially. Does that mean -- can you maybe explain that a little bit more from a product mix perspective? Do you have maybe some legacy products that are now barely contributing to revenue, and it is all about new product mix at this point?

Yes, the increase in the gross margin has driven mainly the combination of the product mix and also to the new products which enjoy higher gross margins. I would say that we are over 60% up from the product mix and 40% from the new products.

Very good. Industrial is now 15%, 20% of revenue. Could you maybe go into that in a little bit more detail? Are we really starting to see now the fruits of your battery products there contributing to revenues?

Yes. Battery product continues to ramp, and that is going heavily into both the industrial, as well as the early stages of the automotive. At the same time, however, we are seeing more and more of the both lighting products and some of our newer power products going into industrial. And that includes, by the way, our LED products. We are enjoying good industrial applications there.

Very good. And just a question on LED. It looks like obviously the notebook market is moving full stream to adopt LED. The monitor market has obviously been lagging with very low penetration. I'm starting to hear some rumblings that maybe the monitor market is going to start adopting LED as well. Can you perhaps comment on that, and can you also remind us maybe what your share is in the LCD monitor market?

You are right. A monitor, it will be lagging because that is a price-sensitive sector. But we do observe that even the China-based manufacturers for LCD monitors, they also began to adopt White LED. White LED for the monitor is really providing brightness and the contrast. But for the notebook/netbooks, because they also carry some power savings, so that can enable your longer battery operating time. So that is why for the netbooks/notebook, the penetration rate is much faster.

By saying that, as I inserted previously, the 30 million dose White LED range, those White LED become very high volume. So the price gap between CCFL and White LED in a LCD monitor gave at some point, there were inflection end points, and that will be accelerating the penetration.

So for O2Micro we work very closely with older LCD monitor either as module or systems manufacturers. They are mostly either in Taiwan or China, and we are very happy to start our design wins percentagewise in their pioneer project with LED-driven LCD monitors right now. So percentagewise there is no really third-party the LCD monitors driven by LED market data. So it is very difficult to estimate at this moment.

Yes, I think it is maybe less than 1% but anyway. The final question, looking at the guidance, 5% to 10% growth. I know you don't give backlog and bookings, but can you maybe just qualitatively talk about that guidance and your visibility? Do you feel like you are being conservative? Are you already pretty booked here after a month or a month in the quarter?

Well, we feel good about the guidance. We can certainly remark is that quarter to date has been very strong. Actually I think unusually strong for a normal type situation that we would see in July. Certainly that bodes very well because traditionally a lot of what had earlier been referred to as back-to-school has not typically started until the August/September timeframe in many cases, and we don't see ourselves dependent on that. So we do see good stable forecasting, which is good coming off of a what we think will be a strong July performance. And so we feel very good about that guidance.

Okay. That is good, and congratulations on the solid cash flow. Thank you.

Graham Tanaka, Tanaka Capital Management.

Congratulations, guys, in steering the Company through tough times, which I know you are still emerging from.

Just to clear up a few things. Legal costs, where do you think that might come in at roughly for the year, and what could that go to in 2010 absent obviously new cases?

We don't break that out anymore. We have want to focus on the business more than expense components. We said that the run-rate of SG&A is going to go back to $8 million to $9 million once the ITC case is over.

One thing I was wondering about is, what has happened that you are talking about ASPs being better on new products. What has happened to ASPs, say, this year versus last year? I know there are usually declines on the order of 10% a year or more sometimes. Has that bottomed out? Has that firmed up, or are you still seeing declines in average selling prices?

It really depends on product types. Some of the older products are, indeed, continuing to see ongoing ASP declines. But I might add that we have had a very aggressive cost reduction program in place, which has helped us maintain margins on some of the older products. But, as Perry indicated, newer products, which are becoming a bigger and bigger portion of the mix, contain both higher ASPs, as well as higher margins.

And what could new products grow to as a percent of mix as we look at the next few quarters? Is it going to get to be a richer mix of new products, say, in the next two to four quarters?

Yes.

Yes, we certainly think so. We are very, very optimistic about some of our new products going forward all the way from netbooks to some of the LED product we have been talking about, as well as our battery and security. We do see significant growth opportunities in all those areas.

Security, I think you mentioned you broke it out. It sounded like it was not a big number in aggregate, but it is growing. What could that -- but it seems to be growing faster now I think you are implying. So what could security growth do in the next year or two?

Security, it is varied seasonality. The Q4, which is the end of the year, usually commanding much higher purchase. So Q2 always is the slow season, and we finish about $700,000. The total this year should be ending finish between 5 to 10 range. And next year we are looking for at least another 50% to 60% growth year over year.

Okay. Great. So security last year before I forget, if you broke that out, how big was it last year, security?

Last year I think -- 2 million to 3 million. I think 2. something, 2.5? 2.5, yes.

Thank you. One of the things that we are focusing on or just trying to understand better and perhaps you would have some more input on it is how big the China market has now become. I know it is difficult to measure, but in terms of end demand, what percent of O2 sales do you think are ending up in the China market?

Well, that is true. What you said is true. It is hard to project because so much of the product was originally assembled in China anyway. The vast majority of our product is shipped into China. But you are correct. China is now consuming much more of their own product. That is particularly evident in LCD TV sales. We don't break that out. However, what we can say is it is very, very rapid growth internally in China at this point.

Is that -- to what extent have you been able to determine how much of the recent demand is due to the China stimulus program for its economy, the government program providing discounts for purchase of appliances, etc.?

Well, we certainly know that the China stimulus plan has helped significantly, but it is a little bit hard to measure because at the same time you have a large population that is growing wealthier so they can afford more and more electronic types products, including LCD TVs. So it is difficult to measure, but certainly a combination of those two factors has resulted in a significant spike in demand. And, by the way, we think it is not a one-time spike. We think the demand is going to continue.

What is -- you are referring to implying that (inaudible) the prices of the Chinese population is able to afford it. Plus, prices are coming down. How much have LCD TV prices come down? And then I wanted to segue into how much LED TV, LED monitor prices are coming down?

That depends on the products, the brand and also the size of the panel. But I will assume that LCD TV conventional way to price will be going down quickly to a neighborhood affordable. Because the China government also has several plans to do the power savings. You can utilize, you can when you use the TV CRT tool, you can change -- you have got some discount because you bring an old CRT. They want to have energy, so it is conserving for nationwide.

Now a second question you talk about LED TV, which is LCD TV driven by LED. LED TV I think in China will be initially will be targeted for the high-end society, and Taiwan will be shipping a small volume. But that will become like IKON or (inaudible). So very difficult at this moment to quantify how much percentage.

But it is significant from original high-end LCD television, which is usually less RGB, and even the high end people are using that. So it is very interesting to see. But the LED TV I think China probably the same as other elsewhere in the world is going to have similar percentage penetration. I don't think China will particularly want to utilize LED TV more than LCD TV. I think they just equally want to penetrate as other places.

Now what is the best way for us to look at how quickly LED prices, LED TV, or just the display prices are coming down versus the digit deflation in LCD?

Difficult to see that right now. I think we probably need to see this Christmas. Maybe more precisely to see this Chinese New Year in February 2010. That would be the major purchase activity and after that probably have more data available.

And some of that is dependent on market situations, let me add, because these markets tend to be elastic in nature. And basically if there is good absorption of the capacity, the price does not come down very quickly. On the other hand, if demand starts slowing, then the manufacturers tend to bring glass prices down quickly to stimulate the market themselves. So it is not always the government stimulating it; it is the manufacturer stimulating it through drops in glass pricing.

So basically you have all a lot of factors at play. But I think one thing you can say in general is that there will be significant ongoing decreases in pricing. As volume continues to grow, you are going to continue to see over the long-term glass prices come down and volume go up. So that is going to happen regardless of whether there is government stimulus or not.

In the US there has been probably some benefit from the switch to digital TV signals. Do you think that that may be the cause of a bit of a spike in the US or not?

You know, Graham, from what I have been reading all these things are factors, but, for example, one of the major suppliers to the industry, one of the other major suppliers -- not a competitor of ours -- suggested what Jim said and said it was price that was driving demand more than anything else.

In this market price point drives demand. That is the history of the TV market going back to CRT TV or the old tube type TV. So basically that will continue to happen with the current cost of the LCD TV still being relatively high to the CRT type tube. So basically we can anticipate ongoing pricing going down, and again manufacturers will push that price down if demand slows.

That is great. That is it for me. Thanks.

That does conclude the question and answer session today. At this time I would like to turn the call back to our speakers for any additional or closing remarks.

Okay. Well, thank you for participating, and we will look forward to talking to you next quarter. Have a nice day.

Once again, that does conclude today's call. We do appreciate your participation.