O2micro International Ltd (OIIM) 2012 Q1 法說會逐字稿

Good day and thank you for joining us today to discuss the O2 Micro's earning for the first quarter of the fiscal year 2012. 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 the O2 Micro's website at www.O2micro.com. There will be a replay available through May 9th, 2012 at 9.59 PM Pacific Time by calling 1-888-203-1112 or 1-719-457-0820, pass code 8119004.

Following the presentation by management the conference will be open for questions and answers, as time permits.

Gentlemen, you may begin.

Good morning and thank you for dialing in to O2 Micro's financial results conference call for the first quarter of 2012 ending March 31st, 2012. This is Gary Abbott, Director of Investor Relations.

I'd like to remind listeners that the discussion of 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 risks 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 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 first quarter ending March 31st, 2011. Perry?

Thank you and good morning. This is O2 Micro's quarterly conference call. This call will cover our financial result for the first quarter of 2012. We will now review our financial results for Q1, 2012.

Please note that financial results will be presented on a non-GAAP basis unless we tell you otherwise. The non-GAAP results exclude 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 first quarter of 2012 was $29.7 million. GAAP net income in the first quarter of 2012 was $44,000. If we exclude stock based compensation of $720,000, the income from discontinued operations of $338,000 and the $100,000 of litigation income, the non-GAAP net income would be $326,000.

GAAP net income per ADS in the first quarter of 2012 was zero cents. Non-GAAP net income per ADS was $0.01.

Gross margin was 56.2% in Q1. The gross margin reflects the current product mix and remains in our target range.

R&D expense was $8.4 million, or 28.2% of revenue. This amount excludes stock based compensation expenses of $252,000 in the quarter.

SG&A expense was $8.1 million, or 27.2% of revenue. This amount excludes stock based compensation expense of $468,000 in this quarter.

Income tax was $245,000 in the first quarter and is mainly based on the effective tax rate of each taxable location for the prior year.

In Q1 2012 we repurchased 807,434 ADS units at a cost of $3.9 million.

Q1 2012 revenue by 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 first quarter with more than $120.1 million in unrestricted cash and short-term investments. This represents cash and cash equivalents of $3.62 per ADS. In addition, O2 Micro has no debt.

Accounts receivable at the end of Q1 was $15.5 million. Our DSO is 42 days. It is in our target range of 40 to 60 days.

Inventory was $7.9 million at the end of the first quarter. This represents 55 days of inventory, and inventory turnover was 6.6 times in Q1.

From a cash flow perspective, we generated $742,000 cash outflow from operating activities in Q1.

Capital expenditures were about $774,000 in the first quarter for IT, R&D and the machinery equipment.

Depreciation and amortization was $1.4 million in Q1.

At the end of the first quarter of 2012 O2 Micro had 803 employees, 56% of which are engineers.

At this time I would like to provide our financial guidance for the second quarter of fiscal year 2012. This guidance reflects our best estimates 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 Q2 revenue to be up 2% to 7% sequentially. We are guiding the Q2 gross margin to be in the range of 55% to 57%. R&D expense, excluding stock based compensation, should be $8 million to $9 million in Q2.

SG&A should be $7.5 million to $8.5 million in Q2 excluding stock based compensation expense. Stock based compensation should be in the range of $700,000 to $800,000 in the second quarter.

Based on the service income of our subsidiaries in different countries, we expect our tax amount to be in the range of $250,000 to $350,000 in the second quarter.

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

Thank you, Perry, and good morning, everyone. In Q4 we stated that a growing portion of our forecasted demand was expected to be from new product designs in new markets as well as new more highly integrated products going into our traditional markets.

Our new product sales did help us to exceed our original forecast for Q1. As the TV business remains soft due to China's ongoing efforts to cool down the housing market and notebook and monitor markets also remain soft, our ongoing design wins with key new products should enable us to offset the sluggish economy, enable us to grow revenues as we move forward.

Let's review some of these opportunities. The Intelligent Lighting group continues to rapidly expand both its intellectual property and customer base. The group now has received 30 patents worldwide in the past 12 months. This rapidly expanding patent portfolio coupled with an equally rapid product expansion covering a wide range of applications has enabled us to penetrate into a significant majority of general lighting customers.

This effort has been accelerated by several key customers demonstrating products which utilize O2 Micro's newest ICs in the Frankfurt lighting exhibit last month.

New products based on our novel design methodologies include step dimming, free dimming, integrated MOSFETs and 110 volt, 220 volt universal input with power factor correction technology. Many leading OEMs find our step dimming and continuous dimming applications very appealing in terms of both cost and performance.

Since our products can also support both isolated and non-isolated designs, as required by different geographic markets, our applications for these products involve leading OEMs worldwide.

As a result, new general lighting products continue to ramp into higher level production for LED lighting application markets including AC/DC product for LED bulbs and tubes, DC to DC for MR16 bulbs, street lighting products, and flashlight and bike light controllers.

We see major opportunities for worldwide rapid growth of high quality efficient lighting for both consumer and industrial markets.

Our growing list of customers not only includes most of the world's major lighting companies, such as GE, Mitsubishi, Orion, Austram, Panasonic, Philips and Toshiba, but also a list of many new technology-based companies that will play an important role in this broadly diversified market going forward.

As stated previously, we have growing confidence that O2 Micro will emerge as a leading supplier in the rapidly evolving general lighting market. In our traditional markets of TV and monitor we continue to be the industry leader in lighting control. We have positioned ourselves well as these markets continue to transition from CCFL to LED lighting.

We continue new product development to further enhance the TV and monitor performance while reducing the overall system cost.

Our intellectual property in both Asian and Western countries continues to strengthen our market leadership position in all lighting areas. We are continuing to file more patents to extend this lead.

Our intellectual power products continue to enjoy broadening market acceptance in DC to DC applications for both Intel and AMB-based platforms in many market sectors worldwide including ultra books. These design wins at major computer OEMs include our new single chip DC to DC with integrated MOSFET being delivered in chip-scale packaging, our new DC to DC supporting Intel's Sandy Bridge CPU, and DC to DC product supporting AMD's new CPU and graphics processors.

Additionally we have design wins for constant ripple current, DC to DC modules for electric vehicle application.

Our intelligent power product offerings and chargers also continue to expand. Our recently released integrated MOSFET charger has a significant notebook design win. Our hydro 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-leading camcorder producer and we are 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, robotic vacuum cleaners, UPS systems and electric vehicles, we continue to see growing opportunities in other markets including notebooks and communication devices.

Most recently we have seen our new battery monitor and coulomb counting IC to achieved design wins in new tablet designs that are rapidly emerging in China.

Although the automotive market will be slow to ramp into high volume, we expect growing volumes to ramp in these other areas. 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.

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'll turn the call over to Sterling Du for some additional remarks.

Thanks, Jim. In the first quarter our business improved and we exceed our guidance. We reported revenue of $29.7 million and a non-GAAP EPS of $0.01. We are doing well with our major product lines including general lightings, power, tech lighting and battery products.

Our general lighting business is rising quickly and our [growing] shipments are on target to hit our goals. We continue to approach key participants in the market and we are successfully demonstrating our value proposition.

In addition, we have recently announced several new patent grants, with general lighting applications that showcase our technology leadership in the market. For example, recently announced patent 867 granted for controlling LED brightness in light bulbs with a standard wall switch and a patent 017 that includes our free dimming invention to control LED lighting with various dimming mechanisms.

Our power ICs are also ramping very nicely. Our DC/DC and charger products are continuing to penetrate the notebook segment with tier one makers. Additionally we are well positioned to continue to post strong results from this segment as new Ivy Bridge notebook models roll out from the manufacturers in the coming months.

In our backlighting business we continue to ship high volumes into the LCD monitor market despite a soft market.

On the LCD TV front we are also delivering high volumes, especially for the model that is selling to Chinese markets.

During the first quarter the TV market remained soft due to slow worldwide sales. Nonetheless the combination of attractive consumer pricing and upcoming Chinese National holiday in May gives us reason for optimism.

We are also excited by increasing design activities in our battery business. We continue to focus these products on the power tools and the corded appliance markets. In certain markets like Japan there's a government regulation that requires the use of battery products needed for taking ICs and we are pursuing new design to help customer meet their requirements. This is contributing to our success in Asian markets where leading manufacturers are adopting our battery protection and cell balancing IC in more and more models.

These units are also shipping globally in some cases and we are ramping up with new designs in a key customer for tools that expect to ship later in 2012 and 2013. As you can see, we're being active in our major business segments.

Now, we at the point where we have excellent technology, strong intellectual property in place to return to the growth later in 2012.

And at this moment I'd like to thank you for listening to our conference and I'll turn it back to Gary Abbott.

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

(Operator Instructions). And we'll take our first question from Tore Svanberg with Stifel Nicolaus.

Yes, thank you and good quarter. A few questions, first of all, just looking at the near-term guidance up 2% to 7%, what's driving that growth? Should we assume that this is still sort of new product design wins or are you actually starting to see some of your end markets returning to more normal growth?

It's new products. We're really not seeing strength at this point in either TV or the monitor business. Notebooks continue to also be not rebounding significantly, so we're really focused on the new product design wins and revenue from that.

Very good and if we look at the TV market obviously it's very much tied to the global housing market, but if you look at notebook there's obviously some new catalysts coming here pretty soon, you know, Windows 8 and the ultra-book market. Could you just talk a little bit about how well you are positioned to capitalize on some of those trends?

Yes; we have been in the notebook for many years and the new platform Ivy Bridge and, as Jim mentioned about the Sandy Bridge, and also upcoming the new catalyst, as you refer, we are active in working with our partner to help out the reference design in different areas from the power to the connectivity. And also we also like to penetrate once these reference designs release to the customer; and our backlighting also participate to support our customer needs.

Very good and it seems like your general lighting business is really starting to take shape here, at least from your prepared remarks. How big is this business becoming now? I mean maybe not this particular quarter but if we look at 2012 is this a market that could get close to maybe 5% to 10% of your revenues?

Well, we think that this is really on an exponential growth path and by Q4 this will be begin to show some significant percentage and will continue to do so in 2013, 2014.

Very good and your inventory days seem to be pretty low right now, 55 days. Could you talk a little bit about how you're planning in Q2 to maybe get that inventory ramped up, back up?

Yes, Tore, this is Perry. Yes we got some short notice of the order in Q1 so that we have a better inventory level as well. And for the Q2 are looking at the new product into the new market we will prepare some [die bank] to support our customer demands for the Q2 demands.

So, I will assume that in Q2 we're going to have some die bank increase to support the customer demands in view of the lower inventory level through the channels.

Very good. Last question, you had in discontinued operations expense this quarter; could you talk a little bit more about that, specifically what that was?

It's the -- we have sold some patent of the discontinued operations.

It's a gain, not an expense.

It's a gain yes.

I see, okay. All right I just wanted to clarify that. Okay very good. Thank you very much.

(Operator Instructions). Andrew Huang, Sterne, Agee.

I just have another question about the general lighting and the success you're seeing there. Can you maybe give us some color by geography, like where you're getting the most success?

Well, we think that the success is worldwide in terms of customer acceptance of our product. The vast majority of this product is built in Asia because even the majors have their products built by manufacturers in Asia that either they control or they are contracting to. So the vast majority of the product ships into the Asian market but much of the decision making is really elsewhere in the world, including North America, Japan, Europe etcetera.

Okay and then maybe so we could just kind of get a better sense of your traction, can you give us an idea of like what kind of unit volumes you did for lighting in the March quarter. Was it like 2 million units or 4 million units?

I think at this point we don't care to give that out. We'll probably give some of that information by the Q3, Q4 time frame but it is getting to be significant volume, Andrew.

Okay and I think in response to an earlier question you said by Q4 it should be a significant percentage; so does significant mean 10% or more?

I don't think it will be 10% but it will be some rational percentage.

Okay thank you very much.

Anj Singh, Needham & Company.

This is Anj Singh calling in for Vern Essi. Thank you for taking my question. My first question was just regarding what you saw as your highest area of growth in the quarter. Which end segment in particular drove the upside or was strong sequentially?

We really saw nice growth during the quarter in the general lighting business. We're also pleased with some of the battery growth. Those were the two best, although we also saw growth in all of our analog areas.

Okay and I know on the last call you guys had also indicated a lot of design wins. Could you update the status on how those design wins might be ramping? And/or asked a different way, what sort of revenue contribution are you estimating from new products versus old ones, if you can break that out?

I don't think we've really broken that out in any detail but what we did indicate, despite the soft market that we saw in Q1, the upside to the forecast was all new product driven above our expectations and again, upside in Q2 is new product driven.

Understood. And one final question, you indicated that the automotive segment is being a little slow to ramp. I am wondering why you're anticipating auto to be slower versus color that we're seeing from other companies that indicate auto is quite healthy and strong at this point.

We refer our auto -- it's battery management, which is our major focus; it is an electrical vehicle car. So in that sense the EV cars, they are ramping quite slowly due to many reasons or restrictions from the charge station to the range of the driving and also of affordability. So we are not referring to the traditional auto electronics.

We do have our backlighting to -- LED backlighting getting to several GPS, telematic, automotive. Most of these activities continue moving along, including the headlights and the brake light or rail lights by the LED. But we generally more refer to the battery management station. That has turned out for taking a longer time.

Okay and one final question, which area do you see your battery management products performing most strongly in?

The battery has three categories we are in participation. One is for the notebook, which is two cell to three cell. Another one is on the four, five all the way it goes to seven cells; that's for power tools. And for the eight, nine, 10, 11, 12, that's majorly for the automotive electrical vehicle type.

And we are focused on the power tool sector and we believe that our position has been one of the leaders in the market and we're providing complete safety protection ICs. And, as we mentioned Japanese government does have the regulation and that enables customers looking for the high end protection and the balancing IC capability, and we are one of the strong candidates.

Okay thanks so much. That was very helpful.

(Operator Instructions). Christopher Longiaru, Sidoti & Company.

My question has to do with the TV market. Can you make a comment, any commentary relatively as to how inventory levels trended, where they are now and where you see that business kind of going over the course of the year?

Well, the inventory levels remain very low and the reason for that is the fluctuation in the glass prices, which really drives the market. And many of the TV producers are obviously afraid I think is the best word to hold inventory in glass due to the price situation. We're hoping that that will stabilize, as Corning commented on, I believe, in their call. If that does, that will help the overall inventory situation.

Corning is hoping for a seasonality pickup. We are too and we hope we see that. Right now we have yet to see it. The market remains very stagnant so we'll just have to wait and see.

Is it still around four weeks?

I think three to five weeks yes.

Three to five weeks.

Depending on the -- on logistics from the suppliers of the glass.

Got it. All right thank you, guys. I appreciate it.

And we have a follow-up question from Andrew Huang with Sterne, Agee.

Actually my question was about your typical back half seasonality. I mean, given that the inventories are low, have you seen any kind of signs from your customers that things could start to pick up in the back half of the year?

I think customers are very hesitant at this point to be overly optimistic. I think the best line is things have kind of stabilized and I think the longer they stabilize the more there could be a tendency for some of the customers to begin to pick up inventory. I think the seasonality remains to be seen at this point. So we're cautiously optimistic I think is the best word.

Okay and then I think earlier you commented that kind of the two biggest areas of growth outside of computer notebook and monitor were general lighting and battery. Can you talk a little bit more about battery, like again which products, just to help remind us?

The battery coming from the two sides; one is the protection IC. Another is balance.

And the protection IC are mostly helping the power tools; and the balance IC does include the power tools and the notebooks. Those are two categories.

And in the power tool side we do see more and more the needing our applications. Then plus we also extended our new application to some corded appliance market. Jim has mentioned about some of the robot vacuum. That's one of the applications.

So we do see new products and new application area. They're trending up with the battery, the business is up.

Okay thank you very much.

(Operator Instructions). It appears we have no further questions at this time. I would like to turn the conference back over to Gary for any additional or closing remarks.

All right. Well, thank you, everyone, for attending and, as usual, I am reachable following the conference call at 408-987-5920. Thank you and have a nice day.

Thank you. And, as a reminder, there will be a replay available for today's conference. That replay is available through May 9th, 2012 by calling 1-888-203-1112 or 1-719-457-0820, pass code 8119004. That does conclude today's conference. Thank you for your participation.