O2micro International Ltd (OIIM) 2012 Q3 法說會逐字稿

Good morning, and thank you for joining us today to discuss O2Micro's financial results for the third quarter of fiscal year 2012. If you would like a copy of the press release we issued this morning, please call Pamela Campbell at (408) 987-5920, extension 8095, and we will fax you a copy immediately. It is also posted on the O2Micro website at www.O2Micro.com under the heading, Investors. There will be a replay available through November 7, 2012, at 9.59 p.m. Pacific time, by calling 1-888-203-1112, or 1-719-457-0820. Passcode 7949604.

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

Good morning, and thank you for dialing into O2Micro's Financial Results Conference Call for the third quarter of 2012 ending September 30, 2012. This is Scott Anderson, Director of Investor Relations. I'd 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 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 Company's 20-F annual filings, our annual 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 and Director, our Head of Marketing and Sales 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 to your questions.

Now I'd like to introduce Perry Kuo, CFO of O2Micro, for a discussion of the financial highlights of the third quarter ended September 30, 2012. Perry?

Thank you, and good morning. O2Micro's quarterly conference call. This call will cover our financial results for the third quarter of 2012. We will now review our financial results for Q3 2012.

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 [debts], 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 2012 was $22.8 million. GAAP net loss in the third quarter of 2012 was $4.3 million, which excludes stock-based compensation of $784,000 and other income from discontinued operations of $14,000, the non-GAAP net loss would be $3.5 million.

GAAP net loss per ADS in the third quarter of 2012 was $0.14. Non-GAAP net loss per ADS was $0.11. Gross margin was 54.5% in Q3. The gross margin reflects the current revenue level and the product mix.

R&D expense was $8.4 million or 36.7% of revenue. This amount excludes stock-based compensation expense of $231,000 in the quarter. SG&A spend was $8.1 million or 35.6% of [revenue]. This amount excludes stock-based compensation expense of $553,000 in this quarter.

Income tax was $293,000 in the third quarter and is mainly based on the estimated tax rate of each taxable location.

In Q3 2012, we repurchased 506,288 units at a cost of $1.9 million. Q3 2012 revenue by end markets break 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. Communication was less than 5% of revenue.

At this time, I would like to provide some additional information. O2Micro finished the third quarter with more than $105.2 million in unrestricted cash and short-term [investments]. This represents cash and cash equivalent of $3.42 per ADS. In addition, O2Micro has no debt.

Accounts receivable at the end of Q3 was $11.6 million. Our DSO is 53 days. It is in our target range of 40 to 60 days. Inventory was $8.5 million at the end of the third quarter. This represents 73 days of inventory, and inventory turnover was 5 times in Q3.

From a cash flow perspective, we generated $2.6 million cash [outflow] from operating activities in Q3. Capital expenditures were about $299,000 in the third quarter for IP and R&D [equipment]. Depreciation and amortization was $1.4 million in Q3. At the end of the third quarter of 2012, O2Micro has 824 employees, 58% of which are engineers.

At this time, I would like to provide our financial guidance for the fourth quarter of fiscal year 2012. This guidance replaced 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 expects Q4 revenue to be $17 million to $20 million. We are guiding the Q4 gross margin to be in the range of 51% to 53%. R&D expense excluding stock-based compensation should be $7.5 million to $8.5 million in Q4. SG&A should be $7.5 million to $8.5 million in Q4 excluding stock-based compensation expense.

Stock-based compensation should be in the range of $700,000 to $800,000 in the fourth 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 fourth quarter.

Demand in our end markets is difficult to forecast at this point. Our fourth quarter revenue guidance reflects the broad-based weakening in our end markets. Given the uncertain demand environment, we were aggressively managing costs. We reduced OpEx in the third quarter and we will work to drive SG&A expenses lower while maintaining our R&D spending at current levels.

We plan to maintain our cost-saving measures until we return to profitability. We believe R&D will drive our future sales and O2Micro is committed to growing our business.

We are still evaluating strategic alternatives related to our Intelligent E-Commerce business. Although we expect to realize lower revenue in the near-term as our revenue guidance reflect, we also expect to realize $8 million to $10 million in annual cost savings as a result of this measure. We remain on track for strategic alternatives to our E-Commerce business by the end of 2012 or Q1 of 2013.

We are now focusing nearly all of our development results in our carefully chosen growth drivers like the General Lighting market, and we are confident this will drive significant growth beginning in future quarters. We believe we will be [well-positioned] to capitalize on higher demand as we eventually emerge from the current business cycle.

Lastly, regarding our share repurchase program, we have been active in this program historically. We plan to be more active going forward. We believe that recently our stock price is below what we feel is a fair value of the Company by a significant degree. We believe very strongly in the future of the Company and we feel like there is no smarter decision we can make than to repurchase our shares at this level.

At the end of Q3 we had a $29.1 million remaining in our share buyback authorization. Returns to shareholders are very much on our minds and will continue to be a focus in the future.

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

Thank you, Perry, and good morning, everyone. In Q1 and Q2 we expressed concerns about the worldwide economy, and these concerns are now coming true. As we noted in our third quarter financial guidance stated on October 3, Q3 demand was affected by ongoing worldwide economic problems affecting our key markets.

As we enter the final quarter of 2012, the ongoing economic problems have resulted in a combination of very conservative forecasts from our customers and low inventories being held by the supply chain based on weak consumer discretionary purchases. Due to our direct visibility into the customer base, we continue to witness a significant decrease in sell-through by our customers in these markets where we have the greatest exposure. We plan to navigate through the lower demand in our traditional markets by expanding our product offerings, increasing our design win activity, and penetrating new markets.

When markets do recover, O2Micro will be well-positioned to capitalize on the recovery based on product strategy, design win activity and our long-standing relationships with key customers and partners. Let's provide an overview of the opportunity in these markets going forward.

In Intelligent Lighting, we have positioned our products for TVs and monitors from low-end single-string LED applications to high-end multi-string 3D TV and high contrast ratio TV. In these traditional markets we continue to be the industry leader in backlight applications while successfully transforming our business from CCFL to LED lighting. We believe that as consumer electronics markets recover, our new products will deliver revenue growth.

We continue to see rapid growth opportunities in General Lighting. The growth of this market will continue with China becoming the latest country to announce the phase-out of incandescent lighting. Early in 2012, we provided a target to ship 1 million units of General Lighting products per month by Q4. We expect to meet this target with the ongoing growth helping us to achieve renewed overall company revenue growth in the second half of 2013.

Additionally, our Intelligent Lighting group has been granted 44 patents with 827 claims in the first 9 months of 2012. This incredible achievement is accentuated for our rapidly expanding General Lighting product portfolio that now covers a wide range of applications, enabling the customer to choose the most desired solution for their specific needs.

This was highlighted with the recent announcement of several new products that are already going into volume production with industry leading suppliers. Specifically we introduced the OZ8027A LED driver controller that provides three-step dimming using any ordinary, non-dimming on-off switch. This product features an isolated flyback topology to help support UL regulatory requirements.

We also introduced the OZ8022M three-step dimmable LED driver controller with a built-in night light feature, which complements our previously-announced OZ8022A and 8022B family of free-dimming LED driver controllers.

Finally we introduced the OZ8024 and OZ8024R LED driver controllers that can dim at any level using any on-off switch. These two products provide true dimmable solutions without conventional [tri-dimmers], which experience compatibility issues such as flickering and high power consumption.

Besides free-dimming, our products now include integrated MOFSETs, 110, 220-volt universal line input power factor correction circuitry for both isolated and non-isolated designs involving customers worldwide.

As a result, new General Lighting products are continuing to ramp in the higher production levels for LED lighting applications including AC to DC product, for LED bulbs, and T5 and T8 tubes, DC to DC for MR16 bulbs and street lighting products.

Our expanding work with most of the world lighting companies as well as many new technology-based companies makes us confident that O2Micro is emerging as a major supplier in this rapidly-evolving General Lighting market.

In the computer market, notebooks were surprisingly weak during the third quarter, with forecasts eroding as the quarter progressed. We believe this was due to a combination of factors including a weak worldwide economy, competition from tablets, and pent-up demand for Windows 8 since most ODMs want to enter the holiday season with the latest hardware and operating system.

Our platform design win momentum remains intact and we share the industry view that ultrabooks and tablets are gradually replacing the traditional notebook market. Because of the shift we're investing heavily in new power management chipsets for ultrabooks and tablets. At the same time we're continuing to expand our market position in power for traditional notebooks. Design activity on next-generation notebook and ultrabook platforms remained strong. We believe our design-ins will enter into production in early 2013 when Intel's Shark Bay platform is planned to begin production.

Our Intelligent Power products continue to enjoy broadening market acceptance in DC to DC applications for both Intel and AMD-based platforms. These design wins at major computer OEMs include our two new low cost, high efficiency, direct current to direct current (technical difficulty) controllers for notebook markets, the OZ8321 and expanded OZ8322, DC to DC controllers extend battery life, improve efficiency, and are compliant with AMD's SV12 specification for notebook computer applications.

We also introduced the OZ8296 IMVP7/VR12 compliant dual DC to DC converter controller based on constant ripple current technology, featuring integrated drivers for Intel CPU core and GFX power supply, delivering up to 94% power efficiency, significantly reducing overall power loss.

Additionally we expanded our battery charger portfolio with the introduction of the OZ8682 highly-integrated SMBus programmable multi-chemistry battery charger controller, providing complete battery charging control for single-battery portable computer systems. It also features the hybrid power boost feature, to support the turbo boost mode of Intel CPUs.

These and other product introductions are translating into significant design win activity.

In our industrial markets, the Company's 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 tablets and communication devices. This included design wins with our OZ8806 cooling counter for multiple tablet applications.

Our product and technology strategy in the automotive markets has enabled us to continue to address larger markets including electric vehicles, where we have made significant progress with several automotive manufacturers. Although the automotive market will be slow to ramp into high volume, we believe our technology leadership in the market is already assured by our strategic positioning and rapidly increasing intellectual property in this critical area.

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, and Intelligent Power. O2Micro is executing on a growth and diversification strategy built on product and technology leadership deliverable to the world's leading manufacturers. We believe that our new products will continue to constitute a growing percentage of our overall business. While market challenges persist, we remain confident that our product development investments and execution will drive revenue growth in the future.

At this time, I'll turn the call over to Sterling Du for some additional remarks.

Thanks, Jim. Despite the weak macroeconomic conditions, we're [planning] to focus most of our development resources on our priority chosen growth drivers, which include general lighting, power management, backlighting, and battery management. By implementing these strategies we are confident in our ability to judge (inaudible) growth in the future.

Next I will discuss our third quarter results. We reported revenue of $22.8 million, a decrease of 29% from the year-ago prior, and 19% sequentially. Our results were in line with the revised financial guidance that we provide on October 3. The weakness in the third quarter revenue was largely driven by two key factors. Number one, broad-based weak sales of backlighting products for TVs and monitors, primarily in China, Europe, [this backlighting] market is also converting from CCFL to LED, and that give us further negative impact. So, we are working on higher-integration LED [driver] parts, and try to offset a share difference between CCFL and LED backlighting.

Second, we also noticed an inventory reduction in the notebook PC market in anticipation of Windows 8. At this time we do not believe the macroeconomic environment is improving as our (inaudible) Europe, Japan, China, and other regions [persist this]. We currently believe that the weakness in consumer electronics that we would have seen so far in 2012 will lingering into Q4 of 2012.

However, we are doing well with many of our product lines including power management, battery management, and general lighting. A portfolio of high performance power management solutions showing steady, continuous growth. We continue to gain market share in this segment, in both DC/DC and charger market. With both Intel and AMD platform for notebook computers, which require complicated power management.

During the quarter, we introduced several new products with [DC/DC] and battery charger applications and that also including Windows 8 and Intel (inaudible) platforms. Our fast-growing General Lighting product will achieve significant revenue by end of 2012, and shipment are on the target hit our goals including [isolation] and [non-isolation] solutions.

We are actively-engaged with top-tier customer in China, Taiwan, Japan, and the United States. We believe 2013 will be an exciting year for the business as several key markets [abandon] the traditional white incandescent light bulb.

During the quarter, we extend our family of General Lighting products by introducing several LED driver controller for free dimming, [step dimming]. LED lighting remains a promising opportunity where we believe we have established a market leadership position and the key patent grants have fortified our IP portfolio.

We are also excited about increased activity in our battery business. We focus on battery management products on the power tool and automotive markets. In certain markets like Japan, there is a government regulation that required the use of battery products equipped with the protection [access] inside, and the [work for] some new design to help customers meet their requirements. This is contributing to our success in Asian market where leading manufacturers are adopting our battery protection and (inaudible) managing (inaudible) in more and more models.

In spite of macroeconomy setbacks in the quarter, we continue to move forward confidently and we are taking the right step to strengthen our business, enhance shareholder value. Looking at our growth opportunity from high level, O2Micro is well positioned in our consumer and computer market by delivering (inaudible) products in world, in the world leading manufacturers.

Moving beyond our traditional market while seeing increased customer traction in our general lighting and battery management and power management products. We are also very focused on expense control and improved operational efficiency which is in the best interest of our shareholder.

In August we announced our intention to evaluate strategic alternatives related to our Intelligent E-Commerce group. The purpose of this action is to drive shareholder value and address the challenges we're facing our business. We remain on track to meet our objectives by the end of 2012 or Q1 of 2013, while currently evaluating the options related to this business are not yet finalized. We'll provide an update as soon as the time is appropriate. And in this transaction we are not only keep the company major focus on high performance analog business, but also upgrade our financial model.

In closing, I am excited about our growth opportunity in General Lighting, intelligent power and intelligent battery, and our new financial model based on the high performance analog focus. I believe growth in this market and change, we are making our model, we are help offset weaker demands in the harder end markets.

At this time I'd like to thank you for listening to our conference call and turn it back over to Scott.

Thank you, Sterling. Operator, at this point we'd like to open the call to questions.

(Operator Instructions) Our first question will come from Vernon Essi with Needham & Company.

Thank you for taking my question. A couple things here, and first off I guess this is just sort of more of a larger scale question, just in terms of looking at your guide. You've got revenue down about 35% year-on-year, and your OpEx really doesn't seem to be moving all that much and your head count actually looks to even be increasing. I was wondering if you could kind of just walk through what's sort of going on behind the scenes there, and you know, why I guess -- I'll pose this question to you, why you wouldn't be more aggressive on trying to cut back OpEx and shore up what looks to be an increasing negative cash flow on your company?

Well, let me answer that. That's the objective, is try to find a strategic alternative for the E-Commerce group and a better focus on analog, and we expect that could be finished either by end of this year or Q1 next year.

So, by doing so, as our CFO Perry mentioned, that could be annually save operating costs $8 million to $10 million, and by this alone. So, before we have finalized this transaction you probably see some we have increasing investment. That's because we focus on the General Lighting, and General Lighting, it has been a design cycle and also the penetration also needs some time.

We do see, we're happy to see our General Lighting has made a very steady progress and as Jim mentioned about in just now that we a minute ago we shipping the [high boarding] by end of the, like fourth quarter of this year, but meanwhile the return of the investment of the General Lighting of course that'd be some time. So, that's why you see something like this. We have another significant [cut-down] but you're going to see the significant downsize after we finish the transaction of our E-Commerce.

Well even -- Sterling, I appreciate the answer there, but even discounting for the E-Commerce business it's still only going to cover perhaps half of this delta of OpEx that we're seeing in relation to the top line, and I -- you know, I can appreciate that you're in a really tough quarter, but you're still running the business as if it's $130 million top line and I guess the question is, you're not going to give us 2013 guidance but certainly I don't think a lot of us are going to be modeling you to get back to that $120 million range any time soon. So, in my opinion at last, you'd think you'd have to reduce head count a little more, or OpEx somehow, to make sure that you're protecting the cash balance here and I think even if you got rid of the E-Commerce business today, you would still probably be running a negative cash flow on the fourth quarter and then possibly even the first quarter, even with a little bit of revenue uptick.

So, I mean, I -- I'm not expecting to get a great answer right now, but I think it's something you really have to take more seriously.

Yes, Vernon, yes, thank you for reminding on this, and indeed actually after Q4 and also given the current macroeconomics, I think that we may probably pass through several quarters in tough situation. That why we keep a very good high cash level to support our company to overcome the situation, and I do believe that we can overcome this with very good cash management through the quarters.

So, even the lower revenue we are doing some, several measures on cost savings and also some driving on the revenue growth of through the design wins, but however you are right, the Q4 and the coming quarters, we may probably pass through some loss from the operation, yes.

Okay, all right, well thanks Perry, and then just one other follow-on question, switching gears, here. If you were to look at the backlighting market where would you say in the LED side, rather, instead of CCFL, where would you peg your market share at for LED backlighting, globally, for monitors and LCD TV? Roughly?

The market share normally we didn't give out the details of market share, and we, we do see this. The -- we are very high market share in the CCFL backlighting. LED, we are not as (inaudible) like in the CCFL, so we do realize that but however, the LED in the backlighting, we are try to adopt several measures, and including we like to do more, [highlight integration] and we also like to take the, the CCFL technology in the backlighting and that to support the special TV and also using share some technology to the LED General Lighting. And we believe that's the key that, of the technology, we share between these two applications and that that would be leveraged even though we have less market share in the CCFL LED. In the backlighting LED.

Good, but I mean, do you have any idea as to what proportion of the market you might have, I mean, just in terms of how we think about the replacement cycle of, or that migration from CFL to LED?

For this, for the LED and the CCFL probably we are in the borderline of the 50%. CCFL we are beyond the 50%, and LED market share we are less than 50%, yes.

So we do, we do think, we are number one in the LED backlighting area, for both TV and monitors, Vernon.

In globally, or in specific regions?

Globally for TV and monitors.

Okay. All right, thanks, Jim.

Thank you. We'll take our next question from Tore Svanberg with Stifel Nicolaus.

Yes, thank you. A few questions. So obviously CCFL and backlighting continues to hurt your business above and beyond the economy, so what percentage of business is still A, CCFL, and B, backlighting, as a whole?

I think (inaudible) now is more than 50%.

It's -- are you talking specifically versus CCFL?

Yes, I'm just trying to understand how much of your business is still tied to backlighting and as a percentage of that, how much is CCFL still?

Well basically, the majority of our business is backlighting and a small portion of that really is CCFL. The CCFL is now down to a much lower level than it was, so, of the backlighting, it is getting to be quite a small portion of the overall backlighting activity, Tore.

Okay, very good, and you talked about tablet when you discussed the industrial category. I assume these are battery management products, but just wondering first of all, why do you classify it under industrial, and second of all, are these material type design wins that could fuel your growth sometime next year?

Well, we're not classifying the -- any of the tablet products into the industrial, Tore, but the majority of the design activity for the battery does go into an industrial-type category.

Sorry, as you, as you start to generate revenues there, I mean, are you going to classify it under consumer or communications?

Computer, yes, it'll be under the computer. It'll be under the computer area, Tore.

Okay, very good.

Now, the bulk, the bulk of the battery designs are in the industrial area, but we also mentioned, and sorry if we weren't clear on that, we also mentioned that we are seeing some design wins in the computer area.

Okay.

Specifically in tablets.

Okay, and a question for Sterling. Sterling, you've talked about this strategic change with E-Commerce, it's going to be completed either by Q4 or Q1, if you do not find sort of the strategic option that you really want or the outcome you want, will you simply just shut it down by then, or?

When you consider to continuation to support of the customer, that would be some option to do, and that probably will be to be off our O2Micro company and then we have the team to taking care of the customer as after, after the transaction for certain period, and it makes sure customer still have the product to shipping, but at that moment does not belong to O2Micro, it's going to be the supporting group, to separate that and they're going to support the customer, yes.

I see, and Perry, if we look at cash flow, what's the current cash flow break-even level, and as you complete this strategy on E-Commerce what would be sort of the new cash flow break-even run rate?

I think it, yes, for the current cash break-even, for the operation, is in the area of $26 million, $27 million level, and after the strategic alternative for E-Commerce, I believe that it will be in the area of $23 million.

Okay, very good, and then just one last question for Jim. You mentioned that Q4 is still a very challenging quarter, but you also suggested that inventories are really low. So, I guess based on what you're seeing or you're hearing, is this something that your customers are just going to continue with through the end of the year, or could we start to see some build rates again in December like we saw last year?

Well, we largely expect it to continue to the end of the year. There may be some upside as we go into December and head, late December and certainly on into January as we head towards Chinese New Year, there may be some inventory going, place to support that.

But your guidance basically assumes the whole quarter to just remain weak?

Right.

Okay.

It's hard to project anything other than that, at this point.

Very good, thank you very much.

Thank you. We'll take our next question from Andrew Huang with Sterne, Agee.

I have a few questions. So first, when I look at Corning's display glass guidance for Q4, they expect units to be flat to down low single digits, and revenue to be down in the low-to-mid single digits. I don't think there's any major share shift in the display glass business, so can you explain why there's such a big difference between their guidance and your guidance, which is down 19% at the midpoint of the range?

Well, we can't speak specifically to Corning. What we can say is where our customers are at, but do let me say this, that there has been a tendency to on the part of customers, to try to sell through more glass in the form of larger TVs, so there is some tendency to rapidly bring down the cost of very large displays. We're talking in the 60-inch, 80-inch area, there has been a major push in the market to bring the costs down very rapidly in that area. So, even though glass may only be down 10%, unit shipments can be down more than that due to the larger mix of glass that's being currently pushed into the market to fill the glass capacity.

We have also seen customers, our customers, project more than 10% down. As a matter of fact, I think there was just an announcement today from Toshiba indicating they were going to be down on the order of 20%, so we believe in the unit shipments that the customers were dealing with. That is the mix that we're looking at right now as we go into the Q4 time frame.

Okay, just to follow up on that though, like when you talk about Toshiba guidance, that's kind of end finished TV guidance, whereas you know, Corning sells to the panel makers which is a little bit closer to your kind of segment of the supply chain. Is that accurate?

Well, at the end of the day the glass ends up in the TV, right?

Right.

Yes, so basically if the mix is going towards larger glass, even though the glass is down 10%, if that is toward higher-end larger displays the unit volume goes down more than that, or certainly can.

Okay.

Andrew, you probably, you probably -- this is Sterling. You probably also heard that [Cheebay], their 32-inch panel, which is smaller panel right now in shortage. So, [Chimay], [Chima], yes, so that's the -- another example of that. The glasses, the usage, may not be proportional to the [IC] usage because of 46-inch and 32-inch, they all using one [IC] and the [Cheemay] has, [Chimay] has post a very good quarter and that is telling you that the little [one] is in shortage right now, yeah.

Okay, but then even for you, if you're going to sell into a larger screen size TV then presumably you would have like a three or four-string LED driver, correct? Shouldn't you get a higher ASP for that, as well?

No. Right now, the large screen like 60-inch for example, the [Forscarns]-slash-Sharp, and they selling as I believe the -- the selling price, discount price, you could, you could get it less than 1 grand, and the way they cut costs is that they greatly reduce one IC to only one IC driver, they also reduce the LED light bulb as well. Okay? So, they do a lot of cost stuff, so you see the panel, the 60-inch, but internally there's a -- they compromise a lot of performance and something else. And that's the reason that the most feeling the high, the large screen panel TV but they contend the less [silicon counter] inside.

Okay, got it. Just one point of clarification, when you gave the R&D and SG&A guidance for Q4, did that guidance include expenses for the E-Commerce business?

Yes, in Q4, yes.

Okay, got it, and I think in one of the Q&As you mentioned that you have some new tablet design wins, and my question is, is that for power management or for backlighting, or for both?

I think for all, yes.

For all three, actually. We also have some battery design. So, lighting, battery and power.

Okay, great, and then just one final question if you don't mind. I think historically you've been buying back shares, you mentioned in your prepared remarks that you wanted to be more aggressive here. Can you give us some more color as to like, I guess how much more aggressive you want to be, or why you want to be more aggressive down here at these levels?

We, I see up in the currently on it's worth below the cash value and also we are in a good position in the cash lever, although we are going to experience some (inaudible) operating activity from the operation. However, we do have very high confidence in our growth driver in the future. So, in this case we will do more active role in the repurchase, however, I cannot disclose the details, yes. So, that's we will pay more attention to and to take up as much as we can, yes, and we are authorized to get more, yes, from the remaining $29.1 million in cash.

Okay, thank you very much.

(Operator instructions) We'll take our next question from Christopher Longiaru with Sidoti & Company.

Hey guys, first, just a housekeeping question because my phone reception's been a little spotty after the hurricane. Could you just go through the guidance one more time, because it broke up a little bit when you were going through that.

Yes, sure. So, this is Scott. We expect Q4 revenue to be between $17 million and $20 million. We're guiding Q4 gross margin to be in the range of 51% to 53%, R&D should be between $7.5 million and $8.5 million for Q4, SG&A should be between $7.5 million and $8.5 million in Q4.

Okay, and then, how much visibility do you have into this guide, in terms of what's booked, what your turns number has to be to hit it? Can you elaborate a little bit on that?

Well basically, what we are seeing at this point is customers placing very, very short-term orders. The shortest that we have seen, in fact, so basically we will need turns at our normal rate of business going into the December time frame to be in the guidance.

Okay.

We do expect, however, to see that at this point.

And what are the weeks of inventory in the channel right now typical to what you normally see?

It normally is six weeks.

Six weeks. That's -- and what, that's what you're seeing now is six weeks?

No, it's less than six weeks.

Okay. That's all I have for now. Thank you guys.

(Operator instructions) It appears we have no further questions at this time. I will turn the conference back over to Scott for any additional or closing remarks.

Thank you all for your attention this morning. Please feel free to contact me at area code (408) 987-5920, extension 8888, with follow-up questions. Have a good day and thank you again for your attention, goodbye.

Thank you, this does conclude today's presentation. As a reminder there will be a replay available through November 7, 2012 at 9.59 p.m. Pacific time by calling 1-888-203-1112, or 1-719-457-0820, passcode 7949604. We thank you for your participation and you may now disconnect.