O2micro International Ltd (OIIM) 2014 Q2 法說會逐字稿

Good morning and thank you for joining us today to discuss O2Micro's financial results for the second quarter of fiscal year 2014. If you'd 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 O2Micro's website at www.O2Micro.com under the heading Investors. There will be a replay available through July 30, 2014 at 9 AM Pacific time by calling 1-888-203-1112 or 1-719-457-0820, passcode 7951380. (Operator Instructions). Gentlemen, you may begin.

Good morning and thank you for dialing into O2Micro's financial results conference call for the second quarter of 2014 ending June 30, 2014. 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. Thus, 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's 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, Chairman and CEO. 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, 2014. Perry?

Thanks, Scott. We will now review our financial results for Q2 2014. Please note that the financial results will be presented on a GAAP basis unless we designate otherwise. The non-GAAP results exclude stock-based compensation expense, one-time charges, nonrecurring 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 second quarter of 2014 was $17.4 million, GAAP net loss in the second quarter of 2014 was $3.2 million. If we exclude stock-based compensation of $504,000, the non-GAAP net loss would be $2.7 million. GAAP net loss per ADS in the second quarter of 2014 was $0.12, non-GAAP net loss per ADS was $0.10.

Gross margin was 51.5% in Q2. The gross margin reflects the current revenue level and the product mix. R&D expense was $5.6 million or 32.4% of revenue. This amount includes stock-based compensation expense of (inaudible) $127,000. SG&A expense was $5.9 million, or 34.2% of revenue. This amount excludes stock-based compensation expense of $377,000. Income tax was $229,000 in the second quarter is mainly based on the estimated effective tax rate of its taxable location.

In Q2 2014, we repurchased 396 and 147 ADS units at a cost of $1.35 million. Q2 2014, the revenue by end-market break down into the following percentages. Consumer was 50% to 60% of revenue, computer was 15% to 25% of revenue, industrial was 20% to 30% 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 $66.2 million in unrestricted cash and short-term investments. This represents cash and cash equivalents of $2.42 per ADS. In addition, O2Micro has no debt. Accounts receivable at the end of Q2 was $10.2 million. Our DSO is 47 days. It is in our target range of 40 to 60 days. Inventory was $9.6 million at the end of the second quarter. This represents 95 days of inventory and inventory turns over was 3.8 times in Q2.

From a cash flow perspective, we generated $4.7 million cash outflow from operating activities in Q2. Capital expenditure was about $338,000 in the second quarter for leasehold improvement and the software license. Depreciation and amortization was $1 million in Q2. At the end of the second quarter of 2014, O2Micro had 475 employees, 59% of which are engineers.

At this time, I would like to provide our financial guidance for the third quarter of fiscal year 2014. 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 with a (inaudible) announcement in the future.

O2Micro expects Q3 revenue to reflect plus or minus 5%. 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 at the low end of $5 million to $6 million range in Q3. SG&A should be $5.5 million to $6.5 million in Q3. Excluding stock-based compensation expense, stock-based compensation should be in the range $500,000 to $600,000 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 summary, our top-line results in the second quarter were within the guidance range that we provided in April.

In Q2, we continued to focus on our ongoing cost-saving measures and we believe that we have aligned our operating expense structure to more effectively manage our business in the current environment with the goal to reach a cash breakeven point in 2015. We believe our cash breakeven point is now between $19 million to $20 million in quarterly revenue and our profitability breakeven point is between $22 million to $23 million in quarterly revenue.

Our guidance for the third quarter of 2014 reflects the ongoing [rates] in our general lighting and battery productlines offset by continued weakness in our power management business for notebooks. Our goal and the focus for the remainder of 2014 is to grow our core mixed-signal business from year-ago levels. We will continue to invest in our carefully chosen growth drivers, general lighting, intelligent battery, intelligent power and (inaudible) lighting and we'll remain confident that the innovation and the investment we are making in this product segment, combined with strong design win activities and a marketshare gain, will lead to consistent growth and a return to profitability in the future.

We are now well underway in our supply chain management review and we expect to realize additional improvement to our cost structure profile in future quarters. Given the uncertain demand and the macro environment, we are prepared to continue to manage costs as needed. Although we believe we have aligned current cost base on current and anticipated revenue levels, we remain very confident in our ability to support current and future customer demands and the program [rents].

Finally, regarding our share repurchase program, we have been active in this program historically and we plan to be active going forward. At the end of Q2, we had $15.5 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. In the last two quarters, we began to share more information, including product sales information related to new products. We will continue that process in this call and expect to further expand the information as we move into the second half of the year when run rates of our two fastest-growing productlines, which are general lighting and battery management, should be at significantly higher and more predictable run rates. We are pleased to inform you that our general lighting revenues continued to grow in Q2 and remain on track to reach our goal of 15% of our 2014 total revenue as stated in January of this year. We continue to grow our sales at major customers through ODM and/or OEM design wins. Key customers like GE, Panasonic, Toshiba, [Irasoyama] and Samsung are utilizing our product technology.

In addition to the growth of sales of non-dimmable products, we are seeing a broader acceptance of our proprietary free dimming products in more and more varying applications and a widening international customer base. Further, we are bringing out the traditional TRIAC controller products for the legacy dimmable fixtures and believe that this will be an excellent product to provide to the industry and consumers based on our years of experience in lighting activities.

The second rapid growing area we have highlighted in our last call was battery management. Our battery management products continue to expand into new designs and applications in power tool, e-bike, e-vehicle and more recently appliance markets. We are also seeing increasing design activity for our products in uninterrupted power supply applications and remain confident that our battery management products will exceed 10% of Company revenues in the second half.

Despite our ongoing weak TV market, LED backlighting did experience growth in Q2 based on our strong position in TV and the beginning of shipments of a key new novel design for smartphone lighting that began ramping into production in Q2 and is expected to boost revenues as this product moves into high volume in the second half of the year.

One disappointing area that has been dampening our growth has been our power products where a combination of weak notebook sales and dynamic shifts in OEM marketshares have affected our revenue growth and will impact our Q3 growth. Nevertheless, our new charger and DC to DC products are gaining acceptance in additional OEMs and in new tablet designs. We expect renewed growth in this area by year-end.

Finally, we would again mention that sales of legacy CCFL products that were less than 1% of sales are expected to remain below this level going forward. I will now turn the call over to our CEO, Sterling Du, for closing remarks.

Thanks, Jim. Our Q2 revenue was in the range of guidance we provided in April. We generated revenue of $17.4 million in the second quarter of 2014, an increase of 6% sequentially and down 7% from the year prior. In terms of end markets, general lighting remains a high growth story and our battery management business continues its solid growth trajectory. Backlighting, especially for TVs and monitors, remain waiting for recovery from softness. We still expect our backlighting business to show modest growth for the year.

Our notebook business remained very challenging as several of our large notebook customers have announced plans to reduce development in the notebook space. This decision directly impacts our guidance for the third quarter and for the remainder of the 2014. While there are some signs of renewed consumer interest and activities, the overall market for notebook and PC remains challenging, primarily in emerging markets. We reported a GAAP loss of $3.2 million in the second quarter of 2014 compared to a GAAP net loss of $4.4 million a year prior. We report gross margin of 51% in Q2, an increase from the 51.2% gross margin we reported last quarter, Q2 of 2013.

During this challenging environment, we are able to increase our gross margin by 30 basis points from the year prior attributable to our proprietary technologies, performance (inaudible), high quality as a result of ongoing efforts to streamline our cost structure profile. We mentioned several quarters ago that we'd like to relocate more resource from the notebook market to fast-growing smartphone and tablet markets. I'd like to highlight our progress in our goal of targeting smartphone and tablet manufacturers. We are recognizing revenue from a major smartphone manufacturer who has adopted an O2Micro solution and we expect to recognize additional revenue from this customer throughout 2014 and into 2015. We are also engaged with several Tier 2 smartphone and tablet manufacturers and we expect to realize additional revenue from those customers in 2015.

As a reminder, we are focused on not only backlighting solutions for the moment, but also leverage the power technology, which apply to the notebook PC, to the Tablet PC and the smartphone, in which mostly are one battery sale applications.

I'd like to highlight the considerable progress that we have made in key growth drivers. Our LED general lighting business continued to grow rapidly based on two key factors. First, the overall replacement (inaudible) market is entering a significant growth phase and becoming well-established. As a leader in LED general lighting, we continue to take advantage of global shift to LED lighting in our strategy to use new product innovation such as our Free Dimming to drive our growth. We are well-positioned for the continued growing the business into the 2014.

Secondly, our strategy to engage both worldwide OEM and ODM end markets has been paying off and both type of customer have relied on the innovation and reliability of O2 products for many years. Following the successful penetration in Japan and the US, we are now engaged with some of the largest LED general lighting manufacturers in the Chinese market. We believe that the industry of LED is in the early inning of the LED lighting revolution and we are well-positioned as an industry leader to benefit as the (inaudible) industry grows.

Our intelligent battery products for power tools, household appliances and other products are also showing significant growth and design win momentum, which will translate to a meaningful revenue in upcoming quarters and years. We are gaining share in this market and we expect to be the market leader for battery management solutions in the near future. Depending on the type of tool and appliance, we generate between $0.50 to $1 silicon content in high-margin business. While many of the world's top-tier power tool vendors have adopted O2 solution, we remain focused on product innovation to [expect] our product offering and develop safer and more reliable power to extend battery operating efficiency and time.

Similar to last quarter, we saw a meaningful number of recent design wins, new stock ramps and significant marketshare gains in the quarter. I am very pleased with the progress that we have made in many of our long-term growth drivers, including general lighting, in backlighting and intelligent battery. 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 like to open the call to questions.

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

Thank you very much. Good morning. I have a lot of questions here, but, first off, Perry, just a couple of housekeeping questions on the financial side. Could you go over to the stock repurchase numbers that you discussed? I think you said you have $15.5 million remaining in your buyback and how much did you repurchase in the current quarter -- or the second quarter, rather?

In the second quarter, it's $396,000 and 147 ADS units.

And how much did that total dollarwise?

$1.35 million.

Okay, great. And then cash flow from operations, what was that in the quarter?

Cash flow from operations, we generated $4.7 million cash outflow.

Okay, all right. Thanks for the housekeeping stuff. To start off the bat, congrats on this consumer -- I guess I assume this is a consumer-driven bucket from your revenue perspective on the mobility side. Wondering about this ramp and how much of that was experienced in the second quarter? Your consumer revenue went up nicely. Was that driven mostly by this mobility product or were there other pieces to that?

There were other pieces to that.

Do you mind elaborating a little bit? Was it more in other mobility products or was it more on the flat-panel side?

It's more on the flat-panel and specifically TV side, yes.

Okay. And while we are on that, this is a question just to completely -- I saw a news event recently about Sharp moving LCD production to Taiwan. I don't know if that was about a month ago or a couple months back. Wondering how the environment is in Taiwan, if things are sort firming up on the consumer side or is it still relative -- I mean it seems like from your commentary things are kind of flattish to down, but it seems like if you are growing some revenue second quarter for flat-panel, maybe there is more to come in the back half of the year. How is the environment shaping up?

Vernon, are you talking specifically Taiwan? You mentioned Taiwan and Sharp.

Well, yes, I mean there was a news announcement a while -- I don't even know if it's accurate or not, but I guess the point I am getting at is you are talking about -- on your prepared comments, you said that, and maybe I misheard that, but it sounded as if the flat-panel environment was sort of spotty or at least on the TV front for backlighting and you seemed to drive some good revenue growth in the second quarter in that area. How is the environment going into the back? I mean do you think it is going to be a decent year-over-year growth or is it going to be flattish to down?

It's really difficult to say based upon the visibility into the market. It's very much dependent more on the China situation as we see the whole economic environment developing. Sharp is not a major player in terms of marketshare at this point, but others are. And fundamentally, right now, the overall economic scenario is not one where we see a lot of optimism coming out of the TV business. Now, we do hope to see some upside, we'd like to see that, but, at this point, that's really hard to project, Vernon.

Okay. Moving to the computer side, you obviously have had some challenges on the notebook area and from the outside perspective, everyone seems to be -- this is probably one of the best years computing's had in recent memory. Wondering what specifically happened behind the scenes as to how you lost traction in that market? You talked about how your ODMs sound like they are going with a different design approach. Can you elaborate on that a little bit further?

Well, basically, the notebook market has not been strong as we know, but fundamentally there has been some significant shifts in some of the marketshare and some of the areas in which we had good market position with some of the OEMs. They have lost share and then also there's been some very dynamic shifts go on where OEMs use different ODMs and we have different positions at some of the ODMs. One of the key ODMs that we have worked with through the years has very much downscaled their whole notebook activity in favor of tablet. Now the positive of that is we will get some tablet traction as we move on toward the end of this year and early next year, but we lose on the notebook end.

So it's fair to say when you talk about tablet traction you are talking more on the non -- well, effectively non-Apple business. It would be potentially Android or Microsoft-based tablets next year?

Right, right. It is, yes.

Okay. And then two sort of final numbers questions just to revisit your results. Inventory was up pretty -- well, on at least a days basis, up pretty big sequentially. Was that related to this program you are discussing or were there other pieces to it?

Yes, inventory we increased by 1.4 million and most of that during the work in process. I think we added 300,000 finished goods at the end of June, June 30. I think (inaudible) will be good (inaudible) for the Q3 in the coming months as the year. The pricing is getting tough as also we observe.

Okay. And then also on the R&D side, that was up sharply on a sequential basis and sort of your revenue per headcount or your cost, excuse me, per headcount seem to be going up. What is the reasoning behind that?

R&D, actually the Q1 was lower by $500,000 (inaudible) annual adjustment and I think the reasonable level will be in the area of 5.5 million, as I guided earlier. But, however, for the Q3, I guided lower end because (inaudible) some of the (inaudible) has been spent in Q2. So the Q3 probably we can expect several hundred thousand. So let's -- Q3 I think the R&D will be down again to the low end of the $5 million to $6 million.

Okay, that's reasonable. Thanks very much, guys.

Thanks, Vern.

Tore Svanberg, Stifel.

Yes, thank you. A few questions. First of all, could you talk a little bit about your relative visibility for Q3? Obviously, there's a lot of moving parts there, but I just want to get a sense that this is a conservative estimate or your best guess or --.

Visibility is generally not good. What we see is, in many sectors, customers coming in for very short-term orders, literally needing product like the next week, so they are very hesitant to take inventory to place orders based upon the current market situations. And we see that across a number of markets that include the battery management area all the way over to the TV area and also even in the notebook area. So many of them are receiving very close-in orders and it makes the visibility difficult and I think many of them, if you talk to them, have difficulty again wanting to take inventory based upon an economic situation that they do not feel good about and do not have good visibility into. So it's not good visibility going into the quarter.

Sounds fair. So just so I get a sense of growth of your new products for Q3, PC is now down to 15%, 20%. Is that going to take another major stepdown in the second quarter as a percentage of revenue?

Maybe, yes.

Okay. And you mentioned (multiple speakers). Go ahead.

It will go down. I'm not sure we'd say major, but it will go down.

Okay. So with that in mind, you mentioned especially one ODM customer that is transitioning into tablets and smartphones. Do you have any other customers within PC this could potentially happen? I'm just trying to understand the headwinds versus tailwinds you have beyond the September quarter.

Not so much. We were surprised by one ODM who has chosen to focus primarily in other areas, not notebook. Some of those areas will be favorable to us, but we don't see shifts going on beyond that, Tore, to answer your question.

Okay, sounds good. And as PC as percentage of revenue continues to come down, does that have any impact at all on the gross margin mix or is the sort of consumer percentage being high still the main reason why you would operate in the low 50s?

Can you repeat the question again?

Yes, I am just trying to understand if the percentage of revenue coming from PC becoming smaller and smaller will eventually have a positive impact on your gross margin.

In general, yes.

So Tore, that also depends on when PC -- several customers from PC -- but then they maybe have a transition to smartphone and tablet and it then depends on the gross margin product mix from the new area, which we are going in, which is tablet and smartphone.

Okay, understood. And I know you typically don't give guidance to the fourth quarter, but the fourth quarter is usually a down quarter for you. This year, it does seem, at the margin, that you have some new businesses ramping. So is it fair to say that you feel a little bit better about Q4 this year than what you typically would?

Yes.

Okay. Very good. And then the last question that I had, so coming back to Vern's question on R&D, is it safe to say that you will be sort of operating in this $5.5 million level for an extended period going forward?

Yes.

Okay, all right. That is all the questions I had. Thank you very much.

Thank you.

Andrew Huang, Sterne Agee.

So my first question is related to your mobile phone design win. I guess the first question is it would seem like that is a pretty crowded space, so I am kind of curious how you are able to manage to secure a design win in that end market.

Well, the competition is always there, Andrew, so we -- our proprietary technology does provide us some leadership and we believe that we have some headstart and we will continue to increase our performance and providing the best quality parts to secure the future business.

Can you maybe be a little bit more specific as to what kind of features or what are the strengths that could have enabled you to win?

This is the power management parts. So power management, you relate to a power efficiency and also when you want to switch the [trending] of your current without any noise and without any undertake, so overshoot or undershoot, that is the performance customers want to see. And our proprietary [technology] and we can deliver that and we believe we continue to enhance and also when the new requirements come out and we are the first one to provide that, so that is the best to ensure our future business.

Okay. And have you given some color as to what kinds of OEM we are talking about here with -- talking about with? Is it like considered a Tier 1 or is it more of a Tier 2, Tier 3 OEM?

You mean the mobility?

Yes.

We've said it was a top-tier smartphone manufacturer is all we've said.

Okay. I guess the question, the follow-on question is there are lots of smartphone makers in Taiwan and China who are growing very quickly. Are you targeting those OEMs as well?

Well, we target both. We target US market and we also target some in China. We are not so target for the Taiwan because we see the smartphone (inaudible) PC China is very -- it's going to be concentrated more in China and also shipped to China. So I believe the US and China will remain our top two territories we target the smartphone and tablet and PC.

Okay. Got it. And then maybe switching gears to the general lighting part of your business. I guess your target is that this should be 15%, 1-5% of total sales for 2014 (technical difficulty).

Yes.

Can you comment on where you expect to get the majority of your growth this year? Is it in bulbs or lumineers or is it in a particular geography?

We named some of the customers, Andrew, and I think you can tell it's pretty broadly maxed. We have product shipping at this point worldwide. We also see growth coming in a very broad mix of products so that basically it's not any one area. It's very broad for us, which we think is good.

Did you say whether or not the gross margin profile of your general lighting business is above, in line or below the corporate average?

It's close to corporate average. It depends on the (inaudible). Also general lighting product mix. Like the Free Dimming, we have very high gross margin and for the general competing product that we also need the volume. So this is probably a little bit below corporate average, but, in general, no, it's in line with the corporate average.

Okay. And I guess the last question on general lighting is, over the past let's say five years, LED component prices have come down very, very significantly. So my question for you is are you seeing more ASP pressure for your general lighting chips today versus let's say last year?

Well, the pressure has been there since day one because this is really a new market where many low-end suppliers, including Chinese, came into the market very early on. So our position was to move to more novel technology, which we did with the Free Dimming. So as Perry just indicated, what we have done is taken a position with Free Dimming where we have good margins and then we also certainly do supply some to the low end. So that is where we get the corporate average. So what we have tried to do is be able to approach a major entity in the market and be able to deliver a broad variety of product to them, but keep the margins in the corporate average area due to some of our intellectual property. So I hope that answered your question.

It did. Thanks very much.

Tom Sepenzis, Northland Capital Markets.

Hi, good morning and thanks for taking my question. You mentioned in your prepared remarks that you have a couple other potential smartphone wins that should hit the model in 2015 and I was wondering if you could characterize what type of Tier 1, 2, 3, what type of customer those might be.

That mostly is Tier 2, as we mentioned that and also, it's more into the channel base.

Great. Are they 4G wins or 3G?

Oh, they are both, yes. Most customers right now either they desire everything 4G or the majority is 4G right now, yes.

Okay, great. Thank you. And I apologize, but could you give the revenue breakdown again that you stated at the beginning of the call? I didn't quite get all the numbers there. Consumer was 50% to 60%.

Yes, that's right. Consumer was 50% to 60%, computer was 15% to 25% of revenue, industrial was 20% to 30% and communications was less than 5% of revenue.

Great, thank you very much.

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

Thank you. Just more of just a technical question, Sterling. Wondering you were talking about participating in the smartphone battery management side. Most of those, and tablets as well, most of those batteries are one cell as you stated. What are the unique advantages you would bring to the table relative to the other solutions that are out there? I mean I think traditionally your approach was having more success on the load management of a multi-cell battery. What makes or what gives you confidence that you can penetrate that market in one cell?

Yes, I probably can explain for the twofold. One is the system architecture point of view because right now as Tom was just asking is 4G -- is most of the 4G LTE. And also the CPU becomes a core, the new [MTK] and then Qualcomm providing very high powerful CPU. They have supported orders. Presumably there is other part multitasking. So the CPU kernel is big enough that you just cannot use -- the previous generation is called a PMIC to providing the CPU power. So the CPU (inaudible) will become dedicated for those upcoming 4G LTE or is a multiple core or CPU smartphone or tablet PC. That is number one. The system architecture is very different from three years ago or the first generation iPad or iPhone.

Secondly, the environment for the smartphone because battery operating time is limited, so there you have a lot of the different accessories, which is like to communicate with the battery. For example, you want to charge the battery as a power (inaudible) as a backup battery. Then you maybe also want to power the battery up from your micro USB. Then that's called an OTG, on the go. That is the peripheral accessory for the smartphone. They also change their requirement.

And then number three is our expertise we are using accurate gas gauge, which is (inaudible) and also other power management and because, as I mentioned, there are two architectures. One is a CPU and a 4G LTE. Another one is an external accessory they change. So the battery becomes more -- one, it becomes bigger. Two, the battery becomes so-called the fast charge battery, maybe you heard that. The fast charge battery, normally what they do is they give you more voltage because they want to limit the current. Now when you talk about the voltage going high, then you have a lot of the power battery management, the requirement and require much more sophisticated gas gauge.

So even though you look at today a smartphone, a tablet as a one-cell battery, but one cell is very different from a couple years ago for say like three or four years ago and that one cell today, one cell -- you can even go to [2] volt, someone may want to go to 20 volt design. So then your whole component rating, component topology and also performance are all different. That is all but try to solve the battery problem to supply to the much powerful smartphone, the battery and the tablet. So in other words, very simple to answer your question and we do see the smartphone and tablet PC when the times are moving on is more like a mini notebook computer.

And I appreciate that answer. That is very helpful. Just so I understand though, you are talking about three separate power initiatives, if you will, going on in this sort of transition to more power-hungry devices. Could you help us understand from a ranking perspective? I mean I would assume the gas gauge sort of battery management aspects that you mentioned lastly are probably your higher probability of success; whereas maybe the apps processor or power management or sort of like mini Vcore, it sounds like something you haven't really had a lot of success with in the past. Is it fair to say that the battery area is probably where you will have the best luck at success or best chances rather?

CPU and the battery both. We have two opportunities for this, two needs, yes.

Okay. All right, thanks for elaborating.

There are no further --.

Operator, we are ready for the next question please.

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

Well, thanks, everyone, for listening today. For follow-up questions, you can reach me at area code 408-987-5920, extension 8888. So thank you and have a good day.

This concludes today's conference. Thank you for your participation.