O2micro International Ltd (OIIM) 2011 Q3 法說會逐字稿

Good day, and thank you for joining us today to discuss O2 Micro's earnings for the third quarter of the Fiscal Year 2011. 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 O2 Micro's website at www.O2Micro.com. There will be a replay available through November 9, 2001 at 959 p.m. Pacific Time by calling 1-888-203-1112 or 1-719-457-0820, Passcode 9100437. Following the presentation by management the conference will be open for questions and answers as time permits.

Gentlemen, you may begin.

Good day, and thank you for dialing in to O2 Micro's third quarter financial results conference call for the period ending September 30, 2011. This is Gary Abbott, Director of Investor Relations.

I'd like to remind listeners that this discussion and business outlook for O2 Micro 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 O2 Micro 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, O2's Founder, CEO and Chairman. After the prepared remarks from these gentlemen, the floor will be open for your questions.

Now I would like to introduce Perry Kuo, CFO of O2 Micro, for a discussion of the financial highlights of the third quarter ended September 30, 2011. Perry?

Thank you and good morning. This is O2 Micro's quarterly conference call. This call will cover our financial results for the third quarter of 2011. We will now review our financial results for Q3 2011. Please know that financial results will be presented on a non-GAAP basis unless we designate otherwise.

The non-GAAP result excludes stock-based compensation expense, one-time charges, non-recurring gains and losses from discontinued operations. Our full GAAP results are available in our press release that was issued earlier today.

GAAP revenue in the third quarter of 2011 was $32 million. GAAP net income in the third quarter of 2011 was $1.4 million, (inaudible) stock-based compensation of $850,000 and the loss from discontinued operations of $36,000. The non-GAAP net income would be $2.3 million.

GAAP net income per ADS in the third quarter of 2011 was $0.04. Non-GAAP net income per ADS was $0.07. Gross margin was 55.5% in Q3. The gross margin is near the low end of our 55% to 60% target range because of product mix. R&D spend was $8.2 million or 25.6% of revenue. This amount excludes stock-based compensation expense of $236,000 in the quarter.

SG&A expense was $7.5 million or 23.3% of revenue. This amount excludes stock-based compensation expense of $614,000 in this quarter. Income tax was $279,000 in the third quarter and is mainly based on the effective tax rate of each taxable location for the prior year.

In Q3 2011 we repurchased 85,658 ADS unit at a cost of $407,000. Q3 2011 revenue per end market breaks down into the following percentages. Consumer was 45% to 50% of revenue. Computer was 35% to 40% of revenue. Industrial was 10% to 15% of revenue. Communications was less than 5% of revenue.

At this time I would like to provide some additional information. O2 Micro finished the third quarter with more than $119.1 million in unrestricted cash and short-term investments. This represents cash and cash equivalent of $3.60 per ADS. In addition, O2 Micro has no debt. Accounts receivable at the end of Q3 was $14 million. Our DSO is 41 days in our target range of 40 to 60 days.

Q3 inventory was $9.3 million at the end of the third quarter. This represents 66 days of inventory, and inventory turnover was 5.5 times in Q3. From a cash flow perspective we generated $5.1 million in cash inflow from operating activities in Q3. Cash flow from operations -- excuse me, capital expenditure was about $757,000 in the third quarter for IP R&D and the machinery equipment.

Depreciation and amortization was $1.2 million in Q3. At the end of the third quarter of 2011, O2 Micro had 755 employees, 55% of which are engineers.

At this time I would like to provide our financial guidance for the fourth quarter of Fiscal 2011. 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.

O2 Micro expects Q4 revenue to be down 8% to 14% from Q3 2011. We are guiding the Q4 gross margin to be similar to Q3 and at the lower end of our target range of 55% to 60%. R&D spend excluding stock-based compensation should be $7.5 million to $8.5 million in Q4. SG&A should be $6.5 million to $7.5 million in Q4 excluding stock-based compensation expense.

Stock-based compensation should be in the range of $800,000 to $900,000 in the fourth quarter. Based on the service income of our subsidiary in different countries we expect our (inaudible) amount to be in the range of $300,000 to $400,000 in the fourth quarter.

Also during the fourth quarter we will have a one-time pre-tax gain of approximately [$1.6 million] related to the sales of our interest in one of our long-term investments.

At this point I would like to remind everyone that we have great strength in our balance sheet and we are optimistic about our future. Right now I would like to thank everyone for participating and turn the call over to Jim Keim to talk more about our business.

Thank you, Perry. In Q3 the computer market remained stable and we continued to enjoy design wins in all key market segments. However, many consumer markets such as TV were soft, including those in Europe, Japan, North America and China where the Chinese government efforts to cool down the housing market have impacted demand.

As we enter Q4, ongoing economic issues will further impact markets including monitors and demand for high-end TVs. Additionally, flooding in Thailand will impact the notebook market due to the hard disk drive shortages. The flooding has also disrupted Japanese manufacturing facilities into which we deliver product.

Despite these economic issues, we remain optimistic that our ongoing design wins with key new products can offset the sluggish economy and lack of growth in TV and monitors and enable us to grow revenues in 2012 and 2013. Let's review some of these opportunities.

In intelligent lighting, our German lighting products continue to ramp into higher production levels for LED lighting applications. In both developed and emerging countries we see major opportunities for rapid growth of high-quality, efficient lighting for both consumer and industrial markets. Our growing list of customers includes most of the world's major lighting companies such as GE, Orion, Osram, Phillips and Mitsubishi.

Our general lighting design wins are being energized by our recently broadening patent portfolio of products for the general lighting market including AC-to-DC product for LED bulbs and tubes, DC-DC for MR16 bulbs, street lighting products and flashlight and backlight controllers.

We have growing confidence that O2 Micro is emerging as a major supplier in this rapidly evolving general lighting market. Our new products are all patent pending and incorporate novel design methodology including integrated MOSFETs, triac control and integrated power factor correction circuitry.

Our products can support both isolated and non-isolated designs. Applications for these products involve customers worldwide. We remain very enthusiastic over this market and expect our products to obtain increasing design wins and contribute to higher revenues in 2012 and beyond.

In our traditional markets in TV and monitor we continue to be the industry leader in lighting control. We have positioned ourselves well in these markets and continue to transition from CCFL to LED lighting. Our intellectual property in both Asian and Western countries continues to strengthen our market leadership position in LED lighting to complement our strong CCFL patent position. We expect an increasing number of LED-based patents to be issued in the coming quarters.

Our intellectual power products continue to enjoy broadening market acceptance of DC-to-DC applications for both Intel and AMD-based platforms in many market sectors worldwide. These design wins at major computer OEMs include our new single-chip DC-DC with integrated MOSFET being delivered in chip scale packaging and our DC-to-DC support for Intel's Sandy Bridge CPU and DC-to-DC products supporting AMD's new CPU and graphics processors. Additionally we have design wins for constant ripple current DC-to-DC modules for electric vehicle applications.

Our charger product offering also continues to expand. Our hybrid boost charger has significant design wins at major notebook OEMs. Our new USB 3.0 boost charger with protection circuit enjoys high-volume production at a world's leading camcorder producer, and we are now delivering high-voltage chargers into key automotive applications to support battery management systems.

Intelligent battery management products continue to enjoy design wins worldwide. While our major design-in focus includes industrial applications for power tools, uninterrupted power supply systems and electric vehicles, we continue to see growing opportunities in other markets including notebook and communication devices.

Although the automotive market will be slow to ramp into high volume, we expect volumes to ramp in other areas with revenue increases in 2012 and beyond. We believe our technology leadership in the market is already assured by our strategic positioning and rapidly increasing intellectual property in this critical area.

Our intelligent E-commerce group continues development work for new high-end market areas involving high-speed IO connectivity applications. As previously reported, we are jointly working with multiple industry-leading OEMs in the development of these highly integrated products.

To summarize our overall market activity, we continue to see a rapid expansion of design activity into new markets that includes all product areas, notably intelligent battery, intelligent lighting, intelligent power and intelligent E-commerce. We believe that our new products will continue to constitute a growing percentage of our overall business, increase our revenue base, and make our Company less prone to adverse economic conditions and increasing competition in commodity products.

At this time I will turn the call over to Sterling Du for additional remarks.

Thanks, Jim. This quarter we reported revenue and a non-GAAP EPS of $32 million and $0.07 respectively. This was slightly better than analyst expectations. Our Q3 performance reflects continued product diversification which is a key for our long-term business plan.

Right now consumer is about 40% to 50% of revenue, computer is 35% to 40%, industrial is 10% to 15% and communications less than 5%. The computer segment has increased by about 10% point over last year because of our diversification plan. Therefore I would like to focus my comment on the mix of our business because we are having good success in our diversification plan.

Let us begin to explain by first talking about backlighting. This market remains a good and profitable business for the Company despite a weak macro environment, especially for the LCD TV market. Overall we believe that our strong (inaudible) technology position support this slow-growth market with good margin and healthy profitability.

This is because the market is very large. To give you some perspective, there should be approximately 650 million units in the combined market for notebook, LCD TVs and LCD monitor in 2011 and we expect to maintain a leading position in the market. Our strong position in backlighting is complemented by our new products that address faster growth segments.

As you may know, we have been investing in general lighting, DC-DC, charger and a battery management system for the past several years as we develop our diversification plan. Our plan works and we are beginning to see our new product in the market contribute more significantly to our quarterly results. In particular our power products have recently increased due to the (inaudible) activities with (inaudible).

Right now it is difficult to see the solid growth for our power product because our largest (inaudible) business is currently in a relative weak market. However, I would like to give you some detail to show how well they are doing.

If we look back at the year 2010, last year, our power product only account for several points of revenue. This small amount has grown very nicely so far in 2011 this year and represents approximately 15% to 20% of recent quarter revenue. This is a big accomplishment in a short period of time and shows good execution of our plan. However, our plan doesn't end here.

Now I will turn to the (inaudible) market. In this segment we are staying the course and developing our cell balancing and gas gauge technologies for early (inaudible) in power tools and (inaudible) segments. We are also targeting automotive applications, although the automotive market remains distant because (inaudible) production of electrical car isn't likely to occur in the near term. However, we are continuing to develop and improve our technology so when the automotive market is ready we will be there with a key enabling solution.

Furthermore, our [patterns] in this area remain a key asset to the Company and represent an important part of intellectual property portfolio. Speaking of patterns, we have also gained several important patterns for our LED driver with many more (inaudible) extend beyond backlighting (technical difficulty) apply to the general lighting as well as lighting in commercial and industrial settings.

Our LED driver patterns cover techniques and implementation that enable efficient power usage (inaudible) core competence for O2 Micro. As you expected, our business from this segment is growing very fast because key customers recognize our expertise. This is the market that should continue to grow nicely for us for the foreseeable future.

For the past reasons we are optimistic about our long-term potential. Our diversification plan is working and our intellectual property is growing. Thank everyone for attending and turn the call back to Gary Abbott.

Thank you, Sterling. Operator, at this time we'd like to poll for questions.

(Operator Instructions) And we'll take our first question from the site of Christopher Longiaru with Sidoti & Company. Please go ahead.

Hey, guys. Can you hear me?

Yeah, go ahead.

Okay, great. So my question has to do more with the LED opportunity and how that continues to ramp, and is the demand environment right now, is that affecting it at all or is your expectation for more of a solid contribution late next year and does that still hold up?

Yes. Right now the design win activity is at a very significant pace. The volumes are not huge but they are growing and we do expect to see exponential growth as we move into next year. So next year should begin to show very good revenue numbers for this product.

And what's the gross margin on that product at this point around?

Gross margin falls well within our normal margin targets.

Towards the high end of the range or which -- or at the low end of the range or is it more just kind of in the middle there? Could you give us a little color?

It's in the high end of the range.

High end of the range?

Yeah, we think we have a fairly good intellectual property position with our designs.

Great. And just in terms of the operating expenses, how much do you have to add to OpEx in order to get to a quarterly revenue run rate in the $40 million, $45 million range? I mean, are you able to sustain the current OpEx and grow the topline without any major expenditures in R&D and SG&A?

Probably it would take probably 20% in variable to reach the higher amount of the revenue, yeah.

Got it. All right. That's all I have for now. Thank you guys.

Thanks, Chris.

And we'll take our next question from the site of Graham Tanaka with Tanaka Capital. Please go ahead.

Hi, Graham.

Hi, how are you? I was wondering if you could talk a little bit more about margins. You focus on gross margins a lot but you seem to be getting negative leverage and your pre-tax and your operating margins have been declining. What do you need to see -- when and what volume levels do you need to see for operating margins and pre-tax margins to start rising again?

This is mainly by the product mix as you are maybe aware, like the computer (inaudible) that we have increased in this year by 10%. So the computer products (inaudible) a little bit lower than our financial model. So you bring down the corporate average to -- down from a 60% level to the 50% level from the beginning of the year. In comparing the different product lines with our cost reduction to make sure we maintain very good gross margin for each product lines.

Okay. But when do you expect pre-tax margins to start rising?

We believe the macro economy in the LED TV and in the (inaudible) lighting, when they're back to the normal course, that would be the time I think we will see the operating margins go back to normal.

And what volume level per quarter do you need to see for that?

I think for the higher gross margins, we expect when the consumer, the LED TV is more than 50%, 55% of the product mix.

Sorry, when what is 55%?

55% of the revenue.

When TV is 55% of the revenue the margins will start going back up?

Not only TV but all the lighting group product including the backlight and TV and notebooks.

For the consumer area.

When that's back up to 55% of revenues, your margins will start going back up?

To the 55%.

I'm not sure what you're saying. You're saying when TV, lighting and notebooks are at that level will your margins start going up?

It's product mix driven so as TV -- the TV market recovers, that higher-margin business will increase as a percent of total revenue. And as the higher-margin business increases as a percentage of total revenue, the gross margin will follow upward. For now that was the point about the mix that Sterling made in his remarks about the power products increase and Perry reiterated increasing by 10 percentage points year to year.

Okay. So what do you -- can you describe the condition of the TV market inventories, production levels, et cetera downstream?

Well, right now the TV market is very stagnant. It's been depressed worldwide as we've mentioned earlier, and basically at this point there's not a lot of inventory in the channel. We would certainly hope that the TV market would see some pickup by the second half of next year, but of course that all depends on economic conditions which are really difficult for us to project.

What percent share does O2 have in the LED space versus the LCD space for TV?

We don't have a good estimate of that that we really can share.

Well, is it higher or lower share?

Similar.

Similar?

But like I said we don't have good third-party statistics that we can point to.

Okay. And new products, power products, new products, what -- in 2012 what percent of sales could that be versus the current percentage?

That would be (inaudible) right how, very difficult. Even right now we ship to the (inaudible) and we talk about (inaudible) that would be very difficult to estimate, yeah.

What is your goal? What are you hoping to achieve as a percent of the total company sales?

We'd like to achieve as high as possible for the high gross margin because right now high gross margin product has tie into the macro economy weakness, so we hope that the whole supply chain will be healthy and we can go back to our normal course rate, and we hope of course we like to shoot for high. But at this moment, (inaudible) prohibit us from predicting more accurate. But, sorry we cannot give you that. We'd also like to know, but we just cannot give you that detail.

Yeah, now could you --

Graham, if you'd like I could follow up in more detail with you after the call. We need to take other questions at this point. Operator, can we move on to the next question, please.

Yes. We'll take our next question from the site of Ryan Carr with Sparta Asset Management. Please go ahead.

Hey guys. How are you? Can you hear me?

Good. Yes.

Hi.

Hey, my questions are really centered around the -- just looking forward at your capital allocation, so if I look at this right you've got 100 and -- as you spelled out $119 million in cash and over the last year or so you've been really excited during these calls to talk about the amount of cash that you have. But I'm really asking about shareholders and what do you plan to do with the cash going forward? I know that you bought back a lot of stock over time. How much stock did you buy back in the quarter?

The quarter we buy the 85 something.

85,650.

So just 85,000 shares? Okay. At what kind of price, like $4 to $5 or something?

$407,000.

So $407,000. Okay. So you have $119 million. What are you -- I guess the question is really about the potential for a dividend, something like that going forward to really give shareholders like ourselves a reason to kind of hang on to the stock during periods like this that are slow. The markets are always uncertain.

What plans do you have for that? Especially I guess the same kind of question here. You're going to have a gain of $5 million from one of your long-term investments. Can you tell me which one that is?

$1.6 million.

I'm sorry, how much?

$1.6 million.

Okay. So does that bring your long-term investments down to what, $20 million still?

Yeah, it brings it down $1.6 million (inaudible).

So if we blend that in, you have $130 million in cash and your market cap is $130 million. But you haven't -- you're not really losing money, so I guess my question is what do you plan to do with the capital that you have right now, Sterling?

We are -- number one, we will continue to buy back stock from time to time when it's good timing, and we are doing that every quarter, sometimes more, sometimes less. The second is we are looking at (inaudible) a general engineer group or small company or technology we can acquire.

As you know there will be new energy space ahead of us (inaudible) developing our solution to enabling the future of new energy. We will be making several (inaudible) and we like to reserve or channel the cash to (inaudible) if we see something we can acquire. So that something is more opportunity versus potential.

We understand today the cash is very low-interest, but the opportunity here for the new energy which is (inaudible). We are (inaudible) company could present a much larger life -- larger picture of their life than today's interest. So (inaudible) we are looking at more opportunity. And as you know the electrical vehicle that would be coming online, but that would be some year away from right now and we probably need some long-term strategy to really go to the end (inaudible).

Right. So other people spend a lot of money, but eventually that new energy car whether it's a full electrical or hybrid is going to be (inaudible), and along with that you have (inaudible) opportunity, then you have the home charging, and then along with that then you have the power tool, you have all of that application that could be coming along.

For example, we see some good partner in the battery technology or some technology like we did before. We have to invest some money like we do the supply chain investment and then make sure we are aware of a very healthy supplier (inaudible) we invest on a CSMC before (inaudible). But we do develop that, developing five different proprietary partners with O2, and today we utilize those proprietary partners (inaudible) to get approach to the generalized (inaudible) to get approach to the general (inaudible) sell-through with the most (inaudible) is coming out from our proprietary (inaudible) and that is because we have a (inaudible) so that (inaudible).

Okay. And then a third part (inaudible) you talk about a dividend, but right now the macro economy everybody knows is relatively weak and we don't know how long it will be, so to survive and to thrive and be successful is the most goal to us. And we believe we have a strong cash over there, and that will enable us to protect our IP portfolio because you see the reason there is a lot of patent dispute between big companies such as Samsung and Apple and with department cash and the people (inaudible) IP even though we don't go through to the court for the litigation. So I hope this (inaudible) strategy is a -- support our shareholder.

Okay. So can I just ask a question about your -- things are difficult out there in the economy, and they were a couple years ago as well. When was the last year that you had negative cash flow? You've been public about ten years. When was the last time you lost money in a year?

We -- a year or in a quarter?

Yeah, in a year. I don't think you have, have you?

No, not since (inaudible).

Okay.

In 2008.

In 2008, yeah.

And how much was that that you lost? I thought maybe a $1 million.

(Inaudible) $4 million.

Okay. So you have like I said $130 million -- well, $120 million in cash plus your long-term investments. And I guess the question is what are you going to do to shareholders so that the people that own your stock don't -- in difficult cyclical times the stock just sells off to cash or worse because there's no reason. A lot of investors have a short-term mentality and they sell it down, even like today at $4 it's basically traded at cash. It means that your business is valued at zero.

You could buy the whole thing, buy the whole company today and get that cash flow back. But you bought 8 million shares back since you've been public and it's done nothing, zero for the stock price because here it is still at $4. So what other plans? I mean, you're basically saying that you're going to make an acquisition. Have you ever made an acquisition as a public company?

No, not public, some of the small start-up.

So when you talk about acquisition, are you talking about a meaningful $100 million acquisition or something that's a tuck-in like $1 million or $2 million, and does that still stop you from another -- allocating the capital a different way? Basically a dividend, something like that, again some reason for people to continue to hold your stock like us during difficult times.

Ryan, we really can't answer these questions.

Okay.

I mean, they're legitimate questions but they're not things that -- we obviously aren't prepared to make any announcements of any kind of acquisitions or anything like that. We've talked before about dividends and other things so --

So have you brought that to the Board? Exactly. That's kind of my question. Have you decided that that's not going to be a good idea, a good allocation of capital? I guess you're saying that you have, so okay. That's really all I had. That's my main questions.

Okay. Thank you.

And we'll take our next question from the site of Andrew Huang with Sterne, Agee. Please go ahead.

Thank you.

Hi, Andrew.

Hi. I guess my first question is, is there any way you can quantify how much the flooding in Thailand affected your Q4 revenue guidance?

It's very difficult at this point to really project that. We do know that we do have some impact in the notebook area. We have had inputs from one account that is affected, and that does have some revenue impact to us. It also has some revenue impact to us relative to product that we deliver to one of the Japanese major customers. That has also been accounted for in the Q4, so we think at this point we have accounted for most of the potential revenue impact.

But we will also say that we do not know at this point what ongoing impact there could be in Q1 and beyond. We don't know how long this problem is going to last at this point.

Okay. So is there any chance that the impact could get worse in Q1?

Well, we don't have the details that go that far out. We would hope the supply chain would get resolved quickly. On the other hand, we really cannot discuss I think with intelligence what may happen in Q1. We certainly will get those inputs from customers as we understand their situation, so that is really difficult for us to answer at this point.

Andrew, we don't know, but it did happen early in the quarter so that at least buys you time for Q1.

Okay. And then going back to one of the earlier questions, could you give us a rough feel of where your break-even revenue is right now?

The break even, the gap is about $30 million.

Okay. Okay. And then let's see, can you comment on ordering trends for backlighting for right now? Because there's been some talk that utilization at some of the LED chipmakers in Taiwan is picking up due to some rush orders for TVs.

Yes. What we have seen for the last few months is a combination of push outs and pull-in. There's very little inventory in the channel. Basically as ODMs are taking orders from OEMs, they are rushing through orders and we have seen some of the same thing. We certainly would hope to see more pull-ins that could have a positive impact on the quarter, but on the other hand with the limited inventory I think it's going to be impossible for the market to sustain a lot of pull-in.

Okay.

But that is a recent trend we have seen, yes.

So I guess since the demand is so choppy, no one is willing to build inventories at this point?

That is correct, and also I think in some areas (inaudible) prices have been falling so many companies are reluctant to hold inventories due to the price situation in the market.

Okay. And then my last question if you don't mind is I think you commented in your prepared remarks that industrial is roughly 10% to 15% of total sales. So can you give us a sense of how much of that is general lighting?

We don't disclose by the space (inaudible) application. It's just the beginning of the penetration as Jim mentioned this year, and generally we expect exponential growth next year.

Right. So we would expect certainly growth in industrial lighting as we move into next year.

Okay. Thank you very much.

Okay. Thank you, Andrew.

It appears we have time for one more questioner. We'll take our next question from the site of Tore Svanberg with Stifel Nicolaus. Please go ahead.

Yes. Hi. Thank you for taking my question. This is Evan Wang calling in for Tore. I was wondering if you could talk a little bit about how the Chinese New Year this coming year might fare. Have you seen any indications that there could be some benefits in Q4 or any backlog for Q1 for that?

I think we've not heard a lot about Chinese New Year. I think that's been on the -- what we would call the backburner. Basically there's been so many other issues in the market including innovations in the marketplace that I think Chinese New Year just has not been an issue at this point. I don't think we'll really get into conversations about what will occur during Chinese New Year until really late December or right after the first of the year frankly.

So you're not sure if the China government's intent to slow growth could impact Chinese New Year at this point? You're not -- there's no indications?

Well, Evan, that's difficult to see right now because China, the government is (inaudible) the chapter right now and if they don't (inaudible) probably that would be the same as usual. So in this case we'll see, yeah. But right now low visibility to see that.

Okay.

So we didn't hear too much, yes.

Yeah. My next question was to do with your gross margin. In 2012 as you continue with your diversifications, do you think gross margin could benefit and start moving more to the center of your target range or even higher? Would that be your expectation?

2012?

Yes. As your diversification continues.

It's really depending on the product mix and with diversification into the notebook computer area with more power area, and also we expect the market of TV coming back and actually would like to meet our gross margin in the mid-range of our target model.

Okay, great. My last question, I was wondering if you could talk a little bit about how the growth rates by product areas are relative to each other such as your intelligent battery, intelligent power, intelligent e-commerce, those types of things. Can you give us a relative sense of how they're growing relative to each other?

Well, I think we can say in the last few quarters that our intelligent power has been growing the most rapidly, and the reason for that is the notebook market has remained strong. We've definitely gained market share with some of our new products both in the charger and DC-to-DC area. We've gained market acceptance based upon our work with Intel and AMD, and we expect that trend to continue.

The TV market as we've said has really been down. It's been a difficult market. In the lighting area we certainly do see very many design wins in the general lighting area, but those are in the infancy and we're not going to see the very high ramp rates until next year. So we're very encouraged by the design wins and the growth potential, but that growth potential will not come online significantly until next year.

I agree. Thank you very much.

All right. Well, thank you everyone for attending, and as always I'm available if there's any follow-up questions. Have a nice day.

This does conclude your teleconference. Thank you for your participation. You may now disconnect.