O2micro International Ltd (OIIM) 2013 Q2 法說會逐字稿

Good day and thank you for joining us today to discuss O2Micro's financial results for the second quarter of fiscal year 2013. 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 August 7, 2013, at 9.00 am Pacific Time by calling 1-888-203-1112 or 1-719-457-0820, pass code 1291083. 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 into O2Micro's financial results conference call for the second quarter of 2013 ending June 30, 2013. 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 facts 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 report, 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, O2Micro's Founder, CEO and Chairman. After the prepared remarks from these gentlemen, the floor will be open to your questions.

Now I would like to introduce Perry Kuo, CFO of O2Micro, for a discussion of the financial highlights of the second quarter ending June 30, 2013. Perry?

Thank you. We will now review our financial results for Q2 2013. Please note financial results will be presented on GAAP basis unless we designate otherwise. The non-GAAP results excludes stock-based compensation expense, one-time charges, non-recurring gains and the losses from discontinue operations. Our full GAAP results are available in our press release that was issued earlier today.

GAAP revenue in the second quarter of 2013 was $18.7 million. GAAP net loss in the second quarter of 2013 was $4.4 million. If we exclude stock-based compensation of $640,000, the non-GAAP net loss would be $3.8 million. GAAP net loss per ADS in the second quarter of 2013 was $0.15. Non-GAAP net loss per ADS was $0.13.

Gross margin was 51.2% in Q2. The gross margin reflects the current revenue level and the product mix.

R&D expense was $6.6 million or 35.1% of revenue. This amount excludes stock-based compensation expense of $174,000 in the quarter. SG&A expense was $7.4 million or 39.5% of revenue. This amount excludes stock-based compensation expense of $466,000 in this quarter.

Income tax was $224,000 in the second quarter and is mainly based on the estimated effective tax rate of each taxable location.

In Q2, 2013, we repurchased 1,032,444 ADS unit at a cost of $3.55 million.

Q2 2013 revenue by end market breaks down into the following percentages; consumer was 40% to 50% of revenue; computer was 30% to 40% of revenue; industrial was 15% to 20% of revenue; communication was less than 5% of revenue.

At this time, I would like to provide some additional information. O2Micro finished the second quarter with more than $82 million in unrestricted cash and short-term investment. This represent cash and cash equivalent of $2.88 per ADS. In addition, O2Micro has no debt.

Accounts receivable at the end of Q2 was $11.3 million. Our DSO is 50 days, is in our target range of 40 to 60 days.

Inventory was $7.5 million at the end of the second quarter. This represents 74 days of inventory and inventory turns over was 4.9 times in Q2.

From a cash flow perspective, we generated $3.3 million cash outflow from operating activities in Q2. Capital expenditure were about $271,000 in the second quarter for IT and R&D equipment. Depreciation and amortization was $1.2 million in Q2.

At the end of the second quarter of 2013, O2Micro had 600 employees, 56% of which are engineers.

At this time, I would like to provide our financial guidance for the third quarter of fiscal year 2013. This guidance reflects our best estimate for the current environment and is subject to change. This is the only official guidance we will provide unless we update it with a [public] announcement in the future.

O2Micro expects Q3 revenue to be flat plus or minus 5% sequentially. We are guiding the Q3 gross margin to be in the range of 50% to 52%. R&D expense excluding stock-based compensation should be $6 million to $7 million in Q3. SG&A should be $7 million to $8 million in Q3 excluding stock-based compensation expense. Stock-based compensation should be in the range of $600,000 to $700,000 in the third quarter. Based on the service income of our subsidiaries in different countries, we expect our tax amount to be in the range of $200,000 to $300,000 in the third quarter.

In closing, our sequential revenue growth in the second quarter is a direct result of a combination of the investment we have made in our carefully chosen growth drivers, General Lighting, Intelligent Battery, the Intelligent Power, and [Backlighting] and a significant market share gains. We are confident that our renewed focus on our core competency, high performance analog integrated circuit will drive continued growth and lead to profitability in the future. We are in the process of completing our supply chain management review and we expect to realize additional improvement to our gross margin profile in future quarters.

Given the uncertain demand and the macro environment, we will continue to aggressively manage cost. We are also very confident in our ability to control costs further as may be required.

Lastly, regarding our share repurchase program, we have been active in this program (inaudible) and we plan to be active going forward. At the end of Q2, we had $20.5 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. Good morning, everyone. Last quarter, we noted that our new power management products enabled our growth in Q1 from the prior quarter and projected a second quarter growth of 15% to 21% in our power management products. In fact, we were able to achieve the mid range of this growth in our power management products in Q2.

As we face difficult market conditions entering Q3 in notebook, monitor, and TV, we expect to see an increasing proportion of our revenues from new products, directly resulting from our major R&D investments in General Lighting, Intelligent Lighting, Intelligent Battery, and Intelligent Power products. Let's quickly review highlights of each of these areas.

In our last update, we announced that we accumulatively shipped over ten million General Lighting units. This growth continued in Q2 as does our industry-leading patent portfolio. Our expanding work with most of the world's largest lighting companies as well as many new technology-based companies makes us confident that O2Micro is rapidly emerging as a major supplier in the high-growth LED based General Lighting market.

These achievements in General Lighting were accomplished by a dedicated team of engineers and support staff. Their innovative R&D activity is backed by intellectual property with our lighting group having been granted 52 patents with 967 claims in 2012 and an additional 22 patents with 408 claims in the first half of 2013. Our Free Dimming technology is now recognized worldwide and is already going into volume production with industry-leading suppliers.

As announced in our press releases, our Free Dimming product now includes three-step dimming as well as continuous dimming products. The product line features include integrated MOSFETs, 110, 220 volt universal line input power factor correction circuitry for both isolated and non-isolated designs involving customers worldwide. Applications include AC to DC product for LED bulbs in T5 and T8 tubes, DC to DC for MR16 bulbs, and street lighting.

Besides General Lighting, our other Intelligent Lighting product line has positioned our LED products for TV and monitors from low end, single string LED applications to high end multi string 3D TV and high contrast ratio TV. We continue to be the industry leader in TV backlight applications with the legacy CCFL business being a minor part of our business. We remain confident that we will continue to grow revenue in LED-based products in our traditional markets as these markets continue to expand. Our intellectual property in both Asian and Western countries continues to strengthen our market leadership position in all lighting areas and we are continuing to file additional patents to extend this lead.

Intelligent battery design activity continues to gain momentum based on our creative design methodology. Our growing revenue base is the result of increasing design wins in tablets as well as industrial applications for power tools, vacuum cleaners, UPS systems, e-bike and other light electrical vehicles. We also continue to see growing opportunities in communication devices with our patented coulomb counter technology. While the automotive market is slow to ramp into high volume, smaller e-vehicles continue to gain market momentum and our technology leadership is enjoying revenue growth.

Intelligent power products are also continuing to show increasing design wins and revenue growth opportunities despite the increasing market for notebooks. Our platform design win momentum remains intact as the market shifts towards ultra books and tablets while we are investing heavily in new power management chip sets. At the same time, we're continuing to expand our market position in power for traditional notebooks as design activity on next generation notebooks and ultra book platforms remain strong. Our Intelligent Power products also continue to enjoy broadening market acceptance in both Intel and AMD-based platforms. This includes our 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.

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's executing on a growth and diversification strategy built on product and technology leadership, deliverable to the world's leading manufacturers.

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

Thanks, Jim. Today I'm pleased to report improved revenue levels that led to our second consecutive quarter of sequential growth in 2013. We generate revenue of $18.7 million in the second quarter of 2013 and increased approximately 8% from the $17.3 million in prior quarter. We report a GAAP loss of $4.4 million in the second quarter of 2013 compared to the GAAP net loss of $5.1 million in the first quarter of 2013. We saw a meaningful number of recent design wins, new product (inaudible) and significant market share gains in the quarter. I'm very pleased with the growth in all our core Power Management product lines in Q2 and we'll continue to innovate and carefully invest in order to spur adoption of advanced Power Management products in the markets we serve.

Basically, I'm pleased to announce now we realize significant design wins in our battery business of power tool with major manufacturers and several key charge design wins for ultra book market recently. We expand this design win to (inaudible) into meaningful revenue in future quarters. Additionally, we believe that we have improved our market share in our Backlighting business due to the strength of Chinese TV manufacturers versus Korea manufacturers as our attach rate is higher with Chinese manufacturers. Ultra micro has also gained market share in our battery basically in power tools and the power management business in (inaudible) markets. Share gains in this market and the increased customer adoption of product are based on propriety technologies. High power performance efficiency is of design and our local customer support.

Moving to the second half of 2013, we plan to focus the majority of development resources on our priority chosen growth driver, which include LED General Lightings, Backlighting, Battery Management, and Power Management. By implementing new strategy, we are confident in our ability to drive significant growth in the future. We remain focused on using new product innovation to drive our growth through significant design win activities in the market share gains. We have very experienced employees. We have participated in the high performance analog market for many years. There are -- and [fruitful] opportunity where we can leverage our solid analog design [facilities] with our competence in providing our customer with a Power Management solution to meet specific requirements.

O2Micro has had a long history of innovation by bringing patent technology to the marketplace including DC to DC converter, featuring constant (inaudible) current technologies, LED (inaudible) for General Lighting featuring our patent Free Dimming technologies and highly integrate mixed signal IC design with cool charge also referred to narrow VDC charger technology. These differentiations makes O2 stands out from competitors in a one which believe will allow us to top our meaningful market share in high performance analog mixed node signal segment going forward.

Our LED General Lighting business is growing significantly and we expect this business to increase throughout 2013 and into next year. We'll continue our strategy to optimize the core structure including a review of our entire supply chain, combined purchase power, and a vendor consolidation in General Lighting in order to meet the requirement of customers, especially Chinese market. In addition to the active design wins of (inaudible) already now in Korea, Japan and US marketplaces.

In closing, I'm excited about our demonstrate growth across our core (inaudible) major and product lines including General Lighting, Backlighting, Intelligent Power, Intelligent Battery and our new financial model based on high performance analog. We look forward to providing you update on our progress throughout the second half of the year.

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

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

(Operator Instructions) Tore Svanberg from Stifel.

Yes, thank you. First question I was hoping you could talk a little bit more about the outlook for Q3. What are some of the puts and takes? Especially, how do you see each of your end markets performing in the September quarter? Thank you.

The key issue for Q3 is really lack of visibility. We're seeing a great hesitancy from customers to place backlog. At this point, we will need backlog fill for September. We do expect that. But nevertheless, customers are very hesitant to place backlog. We do see weakness in notebook as we mentioned. There's certainly softness in monitor as well as TV. Some have projected that they expect the TV market to recover but we have really not seen this as of this point. So the real key issue is just having customers come forward and put backlog in place. But it's very poor visibility at this point, Tore.

Very good. If we look at the notebook market, Intel is coming out with a new architecture. We'll see some unit growth there potentially in the second half of the year. Should we think of O2Micro as being a beneficiary of the Haswell architecture or is your share fairly confident between the previous and the new generation?

The Haswell new architecture is going to have most of their content for O2 compared to the previous generation. We also happy to see the future CPU architect. We also have increasing exposure to the play phone developing for the future beyond Haswell. So, in addition to Intel, we also like to mention we also have quite a polish here with AMD. AMD also have quite meaningful exposure to the low end commodity and consumer centric computing playbook, which is we are also pleased to work with AMD. So, we providing both solution for the Intel, AMD and we happy to see our certain content continues not only for (inaudible) but also increased.

Very good and you mentioned the LED General Lighting business continues to grow. Could you give us a sense of how big that business has become at this point? Could you also elaborate on where your penetration has been so far regionally? My understanding it's primarily Japan. But if you could talk a little bit more about the dynamics there, that would be great. Thank you.

Well fundamentally it is more than Japan. We, in fact, feel we have done worldwide penetration at this point. We are engaged with many of the world majors beyond just prototype stage. We're moving into production nicely. We do see many of the majors using a number of what we would call ODMs. Most of those are China-based ODMs and we feel that we are very well positioned with those. The business does continue to grow and expand. I think as we move toward the end of the year here we can give you a better flavor of the percentage. At this point, we prefer to keep that proprietary.

Very good. Last question for Perry, Perry I think you mentioned at the beginning that you're looking into your supply chain, seeing if you can find some cost savings. Does this mean you're now gearing up for a new higher gross margin target going forward?

I think we'll continue to improve the gross margin by the new vendor assistant cost programs here. So, I would like to mention -- I just mentioned earlier that we expect the growth in the gross margin through the cost [down] program. Another key factor to the improvement of the gross margin is the -- is also our improvements through the product reps.

Very good. Thank you. I'll go back in queue. Thanks.

Thank you. Thanks, Tore.

Andrew Huang from Sterne, Agee.

Thank you, guys. Just another question on LED lighting. I'm curious if you've seen kind of any trends towards maybe a shift to some of the larger lighting companies or is it still very, very fragmented?

Could you repeat that, Andrew? There was a little bit of noise on the line right during part of your question.

Sorry, yes. I just want -- my question was when you look at your business, are you seeing any trend towards larger lighting companies or is it still very diversified?

Well it remains very diversified in the market and we really have seen some signs of some consolidation in the market. I think as it goes forward we will continue to see that because there are so many companies trying to participate in the business. But we -- I think we'll get a better feel of that as we move through the end of the year and on into 2014.

Okay. I think you mentioned earlier that when you do business with these lighting companies, that you're working primarily with the ODMs in China. So is it ODMs that are typically specifying the drivers or is it the end customer -- or the manufacturer or the OEM that's specifying the driver?

Well, basically the production is done in China, but most of the upfront work is really done with the OEMs. We've spent a lot of time with OEMs. They, in most cases, are closely controlling the manufacturers certainly watching the quality issues. That's very, very critical to them. So, at this point, I'd really say that the bulk of the work is done at the OEM level.

Okay and then just one last question on lighting if you don't mind. I cover a couple other companies, your competitors, that also participate in lighting. Some of them pushed energy efficiency and then some of them pushed dimmer compatibility. So I'm just curious what you see the marketplace as being more important?

It varies from OEM to OEM and the area of the market in which they are taking their product. For some efficiency is very important and I would say that efficiency as well as quality are two of the most critical areas. But as we move forward, we also see many looking at how they differentiate their products in the marketplace.

Okay, thank you and I'll get back into the queue.

Thank you.

Vernon Essi from Needham & Company.

Thank you for taking my questions. Perry, a lot of financial questions here and I apologize. I need to just revisit the data points on your share repurchase. Could you run through that again? It sounds like you have about $21 million remaining, if I'm correct?

$20.5 million.

Okay.

$20.5 million remaining.

How many shares did you repurchase in the quarter?

1,032,454 ADS.

That's an accurate number there, okay. Thank you. If you could just discuss -- I guess going forward it looks like you had about a $3 million cash burn on the operations side. Your next quarter looks to be somewhat flattish on a profitability basis or loss basis. You anticipate sort of a similar cash burn level?

Yes, similar, similar.

Okay and --

Yes, go ahead.

No, no I was going to also ask if you could also expand on the free cash flow, if you have any CapEx movements or anything that might offset that?

Our CapEx probably $120,000 to renew our IT R&D and we -- this is the major. So others I assume are quite minor.

Right, it's --

But no major.

I just wanted to make sure there was -- so there's no -- there's going to be no capital investments that you see in the second half of the year, I guess is my --

No.

Also just wondering -- I know you went through a sort of a right sizing exercise. I think the thought process behind that was you're going to have a little bit of revenue expansion going into the back half of this year. It seems like we're sort of getting into kind of a flattish sort of pattern here. I'm noticing, for instance, that the SG&A line hasn't really ticked down as much as R&D. Obviously, that's where you probably made most of the cuts was on the engineering side. But I'm just sort of curious, should we anticipate on an ongoing basis S&GA to sort of be in this same frequency? Then if you'd just expand upon on that. Also why hasn't it gone down more, I mean on a relative basis to the top line? It seems to be operating relatively higher and I would think there would be some level of commission content and what not that's more tied on a variable basis to the revenue line?

We actually in Q3, Q4 timeframe we continued to manage the cost and I expect like that we will continue to reduce the OpEx by $300,000 to $500,000 down from Q2. For the structure re-change, at this moment we still think that we are in a very good design wins and we need to provide our infrastructure, China countrywide and also regional wide to support Japanese customer and also China customer in different site to support different application from LED lighting, General Lighting, Backlighting and also (inaudible). These are all different customers and not to -- and this actually offers more wider play phone for ultra micro to grow. We are not one IC company. So that we have different teams dedicated. As Jim mentioned, we have different dedicated team to support our customers. So we win a lot of [socket] by providing beta support to our customers in this high performance area.

At this moment, we are okay with this variable. However, as I mentioned, if the macro economy however some happen, we need to do the cost reduction, cost management, we will do.

Okay and then finally, Jim, you had some commentary and I apologize I missed it. I think you gave a statistic out about Power Management in terms of maybe a percent of revenue or something along those lines. But could you just discuss a little bit more in depth what are sort of your, if you were to say your two top programs in Power Management outside of LED and all the -- I know it feeds into pretty much everything you're doing, but what would those two be?

Yes, basically to clarify the first part, Vern, we had indicated that in Q2 we hope to grow our Power Management by 15% to 21% and, in fact, we hit the mid range of that. So our Power Management business was actually up very significantly in Q2. Remember that growth was offsetting some of the loss of the ecommerce revenue from us taking that product point out. So basically we did have very good growth in Power Management in Q2.

Now what drove that? What drove that was pretty simple. First of all, in the LED General Lighting area, we did substantial growth. As we mentioned, we continue to expand that area rapidly. We've also seen good traction with our power product line. Particularly, we're very pleased with our charger position as it continues to expand into more and more applications. Also, our Battery Management area continues to expand in power tools, vacuum cleaners, and some other areas. So those areas were very prominent in our upside in the Power Management in Q2.

I assume going forward -- I mean and I'm trying to and I appreciate your lumping LED into this, but I'm trying to delineate the LED side of your story. But if you were to look at the portfolio of products, you would say that charger and battery management would be the two areas that you're going to be focused the most on? I mean years ago you had a lot of other power spots within the PC and notebook area. I assume that's less of a focus now going forward.

Well in terms of the growth, but let's not leave out General Lighting.

No, no I appreciate that. I just -- I mean I -- trying to figure out there's a lot of moving pieces to your story so I'm just trying to figure out --

Right, well there's -- there was good growth in Battery, Power in particularly the charger area as we mentioned and then also General Lighting. Those three product areas really helped drive the growth of the Power Management in Q2.

(multiple speakers)

Sure, go ahead --

The charger is for the notebook, I'm sorry. So the notebook and ultra book still, our major activity.

No, I understand that. I guess if I could -- just one follow on, on the Battery Management side. What would you say is kind of your sweet spot in terms of the voltage range that you're getting the most traction? I mean I remember you were sort of more in the 18 volt kind of frequency but is that curve continuing to climb or are you now going downstream as well?

So Vern, our DC/DC is major is feeding to the Intel new architecture and AMD new architecture. So the 18 volt is more like the wide range input to our charger, which we still have major wide range charger. But I also mentioned that we have a so-called narrow VDC and that charger is going to be less than the 18 volt. It's like from 9 volt to 12 volt. So this is the power range you mentioned to target.

Okay, my apologies, Sterling, maybe I didn't make point clear. But I was talking more about the battery management stuff, I guess more into like power tools and some of these other consumer-oriented applications outside of PC. You had a couple of interesting wins that have been around for a couple years now in the higher voltage area. I'm just wondering how that business has been going? I assume you're continuing to ship into that as you mentioned. But where are you finding your most success?

Yes, we quantified how many cell. We -- our sweet spot right now is 7 cells to 10 cells. Okay, so 7 cells to 10 cells. Then we also have the other, the 10 cell we are the only one providing the 13 cell battery management for the power tool. Yes, you are right. We just extend that as of the previous quarter we have the new IC which is the only one in the marketplace can manage 13 cells. We happy to say we do have a lot of interest for this particular cell because when you have 13 cells battery management, I see then your cost up after the maturity, you could be simplified the combination of the cluster of the battery.

Right. I assume too you're obviously going to garner much higher than your corporate gross margin on a part like that?

Yes, those is in the high side of corporate gross margin, yes.

Okay. All right, thank you.

Tore Svanberg from Stifel.

Yes, thanks. I just had a quick follow up on the TV market. So obviously this market's been quite weak now for the last three years. I was just wondering from your perspective are you seeing any catalyst there at all either in the second half or are there any trends at all that can get that business growing for you again? Thank you.

Well there's certainly rumblings that there may be more incentives coming forward out of China. Certainly that would help along with the market being quite sensitive to building starts because wherever there's additional building starts that helps the market. So we certainly are hopeful in Q3 and Q4 and some of our customers would give us reason to be hopeful. But we're hesitant to put that into projections at this point, sorry.

That's helpful. Thank you.

(Operator Instructions) Scott Preston from Maven.

Hi. Good morning, guys. Can you talk about what is going to be growing -- which segments of your business will be growing in Q3 between the Battery, Power, and General Lighting? Then, can you give us a little bit of insight into Q4 and beyond? Where you expect the growth? When you expect that to come back? When you expect sequential increases in revenue?

Yes, I'll try to answer that. First of all the drivers for the growth in Q3 will not be different than what we had indicated in Q2 where we are continuing to see Power in chargers, the Battery Management as well as the General Lighting certainly will take a bigger percentage of our overall business in Q3. We do remain optimistic for the second half of the year. We just indicated we're certainly hopeful to see some TV upside. We do have good ongoing design win positions. Basically, I think I would be disappointed if we didn't see growth in the second half. But again, we're hesitant with the economic conditions to give any more projections at this point.

But given all the design wins that you're talking about and three growth driver markets, can you give us some insight beyond Q3 what the growth rates of those business? What we should expect as investors? What are some of the hurdles we can hold management to?

Yes, we're really not prepared to give a projection for Q4 at this time.

I'm not asking for projections. I'm asking for growth rates we can expect from those markets. I mean do we expect those to be up double digits next year? What kind of numbers can we look for given the design activity and given the strength of the patents and products you guys have coming out?

So, Scott, this is given right now the low visibility difficult to give out the rough prediction of the rate. But we do believe that our -- for patent technology should be always on the top trend of the growth. Although, right now it difficult for us to give you the rate because Q4 is really -- Q3 right now already has going to be lack visibility and Q4 is very difficult right now to give the right answer right now, okay.

Going back on Q3, you talked a lot about the uncertainty is that people aren't building inventory and that they could come back in September. Can you quantify what that number means to the Company? I mean are we talking -- would that be a 10% sequential increase? What kind of inventory build would that mean for revenues?

So, this is Perry. So for Q3, for September we think the dynamic will be in the area of the $1 million compared to our $18 million which is about 5%, plus, minus.

Okay, so if they do come back and build backlog, you -- that amount would be something in the order of $1 million?

Yes.

Okay. Kind of shifting over to the balance sheet, can you guys talk about some of the assets the Company has? It's I guess kind of been wasting assets these last couple of years. Got roughly $0.50 plus a share in long-term investments that don't seem to be adding much value and the real estate the Company owns in both Santa Clara and Taiwan. Can you talk about how the Company maybe can take some of these assets it has on the balance sheet to help create shareholder value given the lack of shareholder value being created on the operational side right now?

For the -- let me try to answer this. Long-term investment most of the investment are the suppliers to us. At the suppliers actually offering us a very wide basis to get the support in the market and need to do a cost reduction and also some I think further development. So this is for wafer and to the testing company. So, we have four to five companies in this area. So for some of the Company, actually on the listed over the counter, so our liquidity is not too low. So if necessary, we can do but at this moment we think it's still very important for us to get support from our supply chains.

For the property in Santa Clara, Shanghai, and Taipei, this actually not so difficult to get that liquidity if we'd like to do. All these property is about $19 million, equipment $3.5 million, R&D $1 million. So most of the property and equipment -- the $19 million out of $24 million are the offices. So this area we may probably consider to do some portion of the Taiwan area. We keep US and Shanghai as needed. So this is my -- try to give you some color of the property.

Okay, thank you. That's all for me.

Thank you. There are no further questions in the queue. I'd like to turn the call back over to Scott for any closing remarks at this time.

Thank you all for your attention this morning. Please feel free to contact me at 408-987-5920 extension 8888 with any follow up questions. So have a good day and thank you again for your attention. Goodbye.

This does conclude our conference for today. Again, there is a replay available until 9.00 am Pacific Time on August 7, 2013, by calling 1-888-203-1112 or 1-719-457-0820, pass code 1291083. Thank you for your attendance today.