安森美 (ON) 2002 Q3 法說會逐字稿

Good afternoon and thank you all for holding. Your lines have been placed on a listen-only mode. The question-and-answer portion of today's conference. The call is also being recorded at the request of on semi. If you have objections, please disconnect at this time. Your moderator will be John Kurtzweil. Thank you. You may begin.

Thank you, Melissa. Good afternoon and thank you for joining us on ON Semiconductor's third quarter, 2002 conference call. Steve Hanson our president and C.E.O. will not take part in today's discussion. Steve's mother passed away Monday and our thoughts and prayers are with him and his family today. In Steve's absence, Bill George, Senior Vice President of Operations and I will provide an overview on the company's performance for the last quarter. Following our comments we have reserved time for Q.&A, at which time Bill Shrom will be joining us. At this time I'd like to thank Gary McAdam for his assistance in supporting you, our investors. Gary and his family are transferring back to Scotland and he is being replaced by Scott Sullinger who is with us today. I will turn the call over to Gary for one last time. Gary?

Thanks, John. I'd like to highlight our upcoming event calendar. ON Semiconductor will be presenting the Prudential 19th annual technology conference next Tuesday, October 29th at the Lehmann Brothers 2002 semiconductor and computer systems conference on Monday November the 18th, and First Boston technology conference on Thursday, December the 1st. During the course of this conference call we will meet projections and other forward-looking statements regarding future events of the future financial performance of the company. The words "estimate, intend, expect," or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially.

Important factors related today our business, including factors that could cause actual results to differ from our forward-looking statements are described in our 2001 form 10K and other filings with the S.E.C. The company assumes no obligation to update forward-looking statements to reflect actual results or changed assumptions or other factors. Let's hear from our senior Vice President of operations, Bill George.

Thank you, Gary and thanks to everyone who's joined us today. Good afternoon. During the third quarter we made continued progress in driving up our new product revenue, our gross margins and cash balance in the environment of low terms that prevailed across the industry. As a result, and in line with our guidance from early September, revenues were down slightly from the second quarter to $272 million in Q3. The market segment prospective, consumer revenues were up while other market revenues were down. The consumer-end market was the star during the quarter . It was up 17% sequentially driven by power management component sales, especially to Sony for the PlayStation 2 and for Microsoft's XBox.

Our automotive market was down sequentially, driven by the typical plant shutdown that is occurred during July. All though sales to the computer segment were down slightly in total, sales to our power management devices were up despite softness in P.C.-end markets. Regionally the Asian market held firm with revenues flat quarter on quarter. Japan was up 23% driven by Sony. The American and European regions fell by 6% and 4% respectively from the second quarter impacted by the automotive market seasonality. As far as near-term backlog is concerned, at the beginning of the fourth quarter our 13-week backlog was $227 million which was $9 million or 3.8% less than the same index at the beginning of Q3. We are once again operating in a short lead-time environment where product availability is key. Lead times of only a few weeks are common. Backlogs were up slightly while standard components were down a little. By region, Japan and Europe were up by 4% each and America and Asia were down 1% respectively on last quarter. Asia has the region with the largest backlog. Turns during the quarter were around 17%.

Now I want to highlight an area of special excitement to us. Our new products are a real source of excitement to ourselves and our customers. If Q3 our new product sales increased to 23% of our revenue from 19% the first half of the year. Sales of new products were particularly strong in our moss power and and a will go power management group which had new product revenues of 36% and 34% respectively. We continue to gain attention to the industry for several of our new products. For instance, our Jupiter product that combines a gate driver with two to four power moss bits earned honors in the September 9th issue of the e-times. Further, we are winning in consumer applications and in P.C. mother boards with both U.S. and Asian mother board makers.

We recently introduced our raised poly high density tmoss process for fast switching applications. At this point it appears to be a leader in power efficientcy on the motor board. In the analog power management family, we introduced two new P.W.M.controllers specifically tailored to meet the needs of Intel's latest processor, further expanding our presence in the computer space. We introduced an advance driver that's compatible with Intel's microprocessor intended for the server area. Over 20% quarter on quarter revenue growth was achieved in Q3 and our analog power conversion product family. Applications requiring low stand-by power such as home entertainment, tvs, dvds, et cetera and computer peripherals such as printers, scanners led pda's, our design momentum in the quarter.

Product platforms such as the MC44608 and controller families fueled sales growth at European, Brazilian and Chinese consumer electronics customers. Sales of the MC 44608 platform doubled during the quarter. On August 22nd we were recognized formally by the China certification center for energy conservation product or the C.E.C.T., for, quote, reducing standby power and promoting energy conservation and environmental protection, end quote. This award is attributable to the MC44608 platform's performance in several leading Chinese tv models. Sales of our NCP 1200 platform enjoyed continued success in the period with additional large design wins in Brazilian and Korean dvd players as well as several computer peripherals for leading O.E.M.s. Revenue for this family alone are estimated at $at about $10 million. We will announce a new platform in Q4 with significant incremental opportunities already identified.

Capitalizing on our strength in power management and advanced packaging techniques, we launched an initiative to expand our presence in portable and wireless markets. As with all our initiatives we approached this market with multiple products from across our portfolio. We kicked off the program with the introduction of our most sophisticated parts today, our power management application that provides system designers an opportunity to quickly add differentiating features to such products as cell phones-and P.D.A.s. To help extend the battery life of portable products, we introduced a D.C.-D.C.converter that increases battery voltage to 15 volts. The market also provides us with an excellent environment for our midigate logic products. In this familiar he will of products, we introduced a 2-1 analog switch and a high performance flip-flop that are now going into an advance portable game platform. To make the design process easier for the introduction or differentiated lighting functions for portable devices we introduced a tri-color L.E.D. driver that reduces board space and saves costs when compared to competitive multi-part solutions as well as saves energy.

Finally I want to spend a few minutes on one of our most important focus areas, our growth in China. We continue to expand our presence in China whereas I mentioned earlier, we will recognize -- we were recognized by the C.E.C.T. for our accomplishments in standby power reduction and energy conservation. So far we're the only semiconductor to win this coveted award. We've also increased our efforts to form strategic alliances with government organizations such as the C.E.C.T. to position and differentiate the brand from our competition. We are continuing to maximize power efficiency in China and elsewhere by introducing new I.C.s that are designed to meet and exceed international energy agency and C.E.C.T. recommendations as well as blue angel and energy star regulations.

We're on track with our aggressive 2002 China sales goal in servicing both indigenous and multi-national customers in the country. We have the ability to sell our products directly into the local China market without using distributors and further to conduct the transactions in R.&B. currency fulfilling a request of many of our customers and helping to increase our market share at these accounts. As we execute on our low-cost manufacturing strategy we broke ground this quarter for the first sub-micron waiver fab in western China. Although market conditions will determine the rate of construction and startup of this facility, the ground breaking is another smile stone in our strategic map to build a completely integrated enter prize within the country. We are running corporate infrastructure operations in China and further we have engaged several strategic wafer foundries and subcontractors if that area which are already providing qualified products to our customers.

Now for more insight or not our financial results, our C.F.O., John Kurtzweil. John?

Thank you, bill. Our third quarter results illustrate the continued progress in our business as we improve the margin despite a drop in revenue to $272 million, a breakdown by product family is as follows: Analog revenues were flat at 93 million with strength in the consumer and end-market offsetting seasonally low automotive weakness. Moss power revenues were down 3% sequentially to 35 million. Standard component revenues were down 1% sequentially to $128 million.

High frequency revenues were approximately 17 million in the quarter, down 2% sequentially, reflecting continued slowness in the networking space. On a mix adjusted basis, A.S.P.s were down 1% quarter over quarter. However, offsetting this was the strengthening of some of the foreign currencies we deal in with gains of approximately 1% netting to a 0 A.S.P. adjustment. Gross margin continued to climb the third quarter, improving 130 basis points sequentially to 28.7%, driven by our new s and our cost reduction efforts. This compares to 13% gross margins during the third quarter just last year. On the cost side, we exceeded our target of $360 million in annualized restructuring cost savings to finish one quarter ahead of plan and added $365 million annualized savings rate. The incremental savings of 5 million over last quarter or 20 million on an annualized basis were in both C.O.G.S.and S.G.N.A.

All operating expense categories except research and development were down last quarter as the company continues to invest in its new products. All of this helped to reduce our net loss to $20 million or 13 cents per share as compared to a net loss of 32 million or 19 cents per share in the second quarter, which included 10 million or 5 cents per share of restructuring and other one-time charges. This compares favorably to a net also of 69 million or 47 cents per share in the comparable quarter one year ago which included 13 million or 7 cents per share for a one-time charge. Down for the quarter was 52 million with depreciation expense of 30 million and amortization expense of 3 million. Cash and cash equivalents increased 12 million sequentially to $180 million. Inventory was held flat from last quarter at 160 million or 75 days on a cost basis. Distributor inventory was sequentially flat in the quarter and remained in the 14-15 weeks of sales range.

In summary, we had a good third quarter considering the environment with internal fundamentals continuing to improve. We're pleased that the focus of our entire organization on our aggressive cross re -- cost reduction plan and our ability to exceed our cost reduction target. Regarding our fourth quarter outlook, given the forecast by our customers, the economists, and our peers, it will come as no surprise that we anticipate total revenues to be down 3-5%. This is based on an opening backlog for the quarter of approximately 85% of this revenue guidance and the low turns level experienced at the end of the third quarter with little indication that the fourth quarter will have an increased turns level. If turns business does improve then we have a tonight to improve on this guidance. On gross margins our guidance is a decrease of 2 47b-300 basis points resulting from lower volume and expected A.S.P. pressure on turns business for the balance of the quarter. Operating expenses should remain flat as compared to the third quarter.

In summary, we continued to increase our gross margin to the introduction of new products and an aggressive cost reduction program in a flat to declining revenue environment. We have created a much more efficient manufacturing structure that has helped lower the cash break-even point in the company. Our R.&D. investments are increased sales of new products both in absolute dollars and as a percentage of revenue. We are continuing to make progress, as Bill said, in our China strategy, and we also continue to attract key talent to build a business for the future, such as Mike Jacobs, our new VP of sales for the Americas and corporate accounts. Thank you at this time, and Melissa, please open you up the line for questions.

Thank you. At this time if you'd like to ask a question, please press star 1 on your touch tone phone. Again, that's star 1 to ask the question. Thank you, Mark. You may ask your question and please state your company name.

Good afternoon, guys this morning. Morgan Stanley. Just a question on the gross margins. When you look beyond the fourth quarter, can you talk about the cost savings problems programs that you have in place that should allow for some improvement in margins in 2003, and is that simply going to be or mostly be volume-dependent or if your revenues were to hold flat, let's say in the first half of next year, would gross margins have an opportunity to improve based on overall expense reduction programs?

Bill will handle this one.

Hi, Mark. This is Bill George. To us, we'll never be able to rely on cost reductions only from volume. We are -- we have several programs, additional programs in place for additional cost reduction, and we're defining further programs as we speak, as we're doing our final look at the plans for next year. So there will be an ongoing program that we'll talk about in future calls on additional cost restructuring efforts in the future. As I said, some of those problems are already underway.

I guess do you guys, versus a view then as to what your gross margin trends would look like as you go through 2003?

This is John. What we expect for the gross margin is that on a flat revenue basis, to be able to get the revenues or gross margins up into the low 30s, so we're at 28% today, and what we should be able to do is get that up into the low 30s exiting the end of the year.

Except you're dropping. You're going to be like 26% or so, right?

What we're doing this quarter is we're having selective plant closures for a week here, or a week there to balance the inventory and the supply demand, and what we're doing, we're just doing that to make sure we balance the inventory where the customers are. We don't want to take out the capacity that's going to stop us from being able to meet the customer's demand in the first part of next year.

Right. But I guess when you look at starting at 26% here in the fourth quarter, won't it take actually fairly meaningful volume increases without meaningful price degradation to get to your gross margin objectives by the end of next year?

It will, and Bill's working on those plans to get the costs in line right now.

Okay. Great. And where do you now kind of size the break-even for the company?

We still think that the break-even, given all the price pressures and the costs we're taking out, it's still going to be right around 300 million.

Okay. Great. And is there -- I know you guys are obviously pretty sense if I have to trying to drive the company to profitability. You're sensitive to that. Is the likelihood going to be that you're going to implement a plan to lower that break-even?

That's our -- that's what we're working towards, to get that break-even point as low as we can. On the other side of the equation, that we're continuing to spend R&D to continue to drive product generation. For example, on the increase in the revenue this quarter from new products, the gross margin on that was well above 30%. So as we introduce and ship the model from less standard products into more of our core or growth products, we're going to be able to see that change in the gross margin next year. ates two-prong approach. It's the new products as well as -- and it's a fact of life every day. We've got to figure out how to take more cost out. Those two things combined are what's really key to our success. And that of our customers as well.

Right. Thanks a lot, guys.

Thank you, Jon. You may ask your question and please state your company name.

Salomon Smith Barney. John, can you discuss a little bit free cash flow? I haven't quite gone through the statement yet, what you define as cash from operations minus -- you know, plus depreciation, amortization, minus capital spending.

Free cash flow was about 17 million for the quarter, where what we had in here is we did have a $9 million refund check from the I.R.S., so, you know, when you that I can out, the cash generated, you know, from internal operations within the company, you know, was -- you'll have to take that $9 million out of that.

Okay. Would you expect to be a little closer to neutral here in the fourth quarter as your gross margins and, obviously, earnings come down a little bit?

You know, my expectation is that we're going to have a slight decline in cash balance at the end of December from where we're at today, and part of it is just timing in terms of payments of interest to the bank where we had about $5 or $6 million paid on last day of a calendar month. The way that our calendar and fiscal year ends up is that it ends on December 31st. So we get two bank payments in there. So my expectation is that we're going to be down just slightly, 5-10 million maybe at the most.

Okay. Can you just liquidity a little bit, your current cash balance, what's your cash burn rate going into next year, and then any payments that might be due sometime in the next 12 months or so?

Sure. In terms of our cash balance, you know, at these revenue levels, we fully expect that we're going to be able to generate cash at the $270 million level. When it gets below that we'll burn a little bit. There are some -- some payments next year. For example, the debt payment next year is about 9, maybe $10 million of principal payments. We also have about -- in interest payment in the first quarter, for supplemental debt on the bank from the waivers we received over a year ago, that's about 25 to $27 million and that's half in Q1 and the other half is due in Q2. So I think those are the two out of the ordinary payments that we're facing going into next year. As far as the major debt repayments, we don't have any major debt repayments due before July of 2005. Other than that, it's like 10-12 million a year.

Okay. And then if you had to guess, how much cash do you think you'll burn next year or can you be cash flow neutral?

I think with operations where they are at.

Yeah.

I don't see why we shouldn't be able to make that supplemental payment as well as the capital investments and the repayments of the debt, and still be able to keep cash neutral. I don't see any reason why we should not be revenue positive next year, and able to grow margins, and with the new products we expect to even take market share, which will put us ahead of whatever -- you're taking the entire market to.

Okay.

We expect to do better than the market.

All right. Just final bookkeeping. What was Cap Ex in the quarter? What would you expect it to be fourth quarter and possibly next year, depreciation as well?

Cap Ex was right around $9 million last quarter, and next year, you know, if revenue's at a flat level like it is today, I think we're going to be somewhere around 60-70 million in terms of capital if it's -- if revenue goes up, we'll spend a little more. If it's going to be down, as Bill said, we'll mod late the investment for the fab so it will be down. So it's going to be a moving target depending upon where the economy goes.

And Q4, what would Cap Ex be? Any idea?

Probably another 9, maybe $10 million.

Okay. And then depreciation in the quarter was about how much?

It was about 30 million, and then on top of that we had $3 million f amortization of intangibles.

Right.

We [INAUDIBLE] that to he remain pretty constant for a while so on a quarterly basis you would roughly estimate maybe $120 until in depreciation next year?

Yeah. That's pretty good.

Maybe 12 million in amortization. 12 million, the $3 million will be for the next ten quarters.

Gotcha. Okay. Thank you.

Yes.

You may ask your question and please state your company name.

Hi. Good afternoon. Curt with first Boston. John, can you just talk about what you're seeing on pricing, where you stand with your oems on price negotiations for '03 and how much that pricing assumption translates into your gross margin.

Okay. I'm going to ask Bill to handle the pricing question and then I'll get back to the gross margin.

Yeah. Pricing for q 4 is flat issue, maybe slightly down a little bit. As far as the backlog that's loading in for Q1 at this time, it's flat. It's flat with the Q4 level. We're in the middle of the oem contract negotiations and they really won't finish up until the mid to end of December. We expect to have price pressure ase go forward. And to add a little bit more to that, we are seeing the price pressure as Bill said. Typically what happens in our turns business is that as the quarter goes on we see incremental pressure, especially as Bill mentioned, that lead times are shrinking. You can correlate pricing and lead types pretty well. On the next year we're not finished with the contract season. We're still negotiating a lot of our contracts, especially with the major O.E.M.s. We won't have a good handle on that for a good month and a half or so.

Okay. But if your backlog is flatish to slightly down and you have 85% of your guidance in backlog, is the gross margin decline pretty much mostly volume?

Yes, it is.

Absolutely.

Okay.

And it gets back to what our thought is, is that our customers and our customers' customers are building ahead for Christmas through the first part of -- through the end of September. We saw good business in September for shipments into October and first part of November, and then we didn't see a lot of turns business come in at the end of September. Our expectations, you know, we have -- the end of the year is going to be tight for turns as well, so we're -- we're kind of hanging out there waiting on how the end of the quarter is going to end up. If it ends up on a God note, we could actually be higher than where we ended up this quarter but I think our conservative stance says that we're going to be down.

Okay. And in other words, when you're talking turns business, now, you just talk a little bit about your sell-in versus sell-through. I know distributetors have reduced inventories a bit. How does that act that and also was capacity even during the quarter?

Sell-in versus sell-through, last quarter was absolutely -- you couldn't have been flatte3 than a board, you know. It was pretty close to that. This quarter, you know, we're expecting it to be the same where the distributors are pretty much pulling what they are selling. From that standpoint we're not seeing big adjustments. What was the other one?

The utilization.

Capacity utilization we expect in the quarter to be running about 75% of equipment capacity, which is -- and that's -- we'll be running most of our man capacity. We are taking some short-term factory shutdowns later in the quarter around the holiday period to avoid any inventory bills and of course that's adjustable as the quarter goes on based on what happens with turns.

Okay. And what was it in Q3?

Just about the same.

Okay. All right. And just last question, can you just talk about what you are seeing in your wireless business, whether that's still healthy or you think there may be inventory build there?

What we're seeing right now is our wireless business is holding compared to Q3.

Great.

Thank you. David Bitterman.

David Bitterman from Deutsche Bank. Any particular opportunities that you might be able to direct us to for '03 in terms of revenue and what I'm looking for is sort of industry expectations across, you know, your different end markets. Maybe you can give us a little flavor of what you're anticipating for '03.

I'll give you the old review -- the overview and then if Bill has some more specifics, I'll let him chime in. What -- you know, what our expectation is is that, you know, the economy, you know, is going to remain relatively flat through the spring. There might be a little uptick the first part of the year but it will be flat. And with that, we're in so many diverse products that, you know, you can pretty -- a lot of times you can gauge us with the economy in total. Our real differentiating factor is going to be our new product revenue on how we get that out. The key thing to watch for us is the number of new product introductions we have and how fast we get that product out and in watching our new revenue, new product revenue as a percent of sales. That's really going to be the Judge for us in total moving forward. Then I'll let Bill talk a little bit about some of the markets.

Yeah. I mean, from an overall standpoint, we continue to see the resources -- our own research pulling numbers down. Right now we're looking at a 10-15% growth in the overall market next year. Wireless, mobile looks to be pretty strong. From T.P.G., we've been down this road before and they've been supportive. At trend of the day given some sort of -- some giveback on fourth quarter from previous expectation, what's the read from you guys on T.P.G.?

T.P.G., as you know, they have four board seats. They are -- and they own over 70% of the equity of the company. They have a lot invested in this. They spend a lot of their personal time on this investment as well, and they give us excellent guidance. I think they are a excellent supporter of us and they've helped us, and just about every possible way that we've asked. They are a great support.

Very good, thank you.

You're welcome.

You may ask your question and please state your company name.

Lehman Brothers. The first question I have, did you hear you correctly in saying your operating margin sequentially should be flat with the third quarter?

Pardon me?

You gave some operating margin guides. Did you say --

Yes. Our operating expenses should be flat in the third quarter.

The operating expenses should be flat.

Right.

Okay. The second question I have was regarding your inventory levels. One, can you update us on what the weeks on hand were at your distributors, and second, does your fourth quarter guidance on gross margin assume any sort of inventory burn or build or flat on your inventories on your balance sheet?

The inventory of our distributors, our model is to be between 13 and 15 weeks. Right now we're at 14, a little bit over 14 weeks so we're right in there. We've been managing to that for the last couple of quarters, and as the distributors have taken downturns we've maintained those levels so we're managing debt inventory on a very good basis.

Do you expect inventory next quarter to be about $160 million as well?

I expect it to be plus or minus. Not significantly different from where it is today. You know, what we want to do is we want to position ourselves for Q1, and we're going to be judging that as the quarter goes on. As Bill said in terms of the wafer fab, we're going to manage that and manage inventories where we see things get better, we'll adjust the capacity. If it doesn't we'll be very proactive in terms of managing that line item.

Vary good, thank you very much.

You're welcome.

Thank you. Quinn Belton. Please state your company name and ask your question.

First question on just sort of back to the pricing, it sounds like pricing on the turns business is getting aggressive here in the fourth quarter. I know you're currently negotiating new pricing contracts with many O.E.M. customers. Typically how long does it take for the turns pricing environment to get reflected in your backlog? I assume that's probably a one or two quarter event then I've got a couple of followup questions.

So what happens on that, to get it into our business, you know, some of the turns business takes effect immediately. Some isn't out for different periods depending upon when the contracts are, but our expectation is that these contracts will -- with the lower pricing, will hit in Q1 and in Q2. So you're going to seat impact almost immediately incomes quarter. In the first quarter of next year.

So you think to the extent that we've got aggressive pricing that we should see most of that impact by the first quarter of next year?

I think you're going to see a lot of it hit in the first quart quarter. Given today's environment that's when it's going to hit. If it gets better from an economic standpoint and demand increases, you know, we're going to have opportunities to increase some prices. If it gets worse, and let's hope it doesn't, we'll -- might see other impacts.

Okay. And then there's a comment that lead times are coming down. I think not surprising in this environment but just sort of wondering if you might be able to put some numbers behind that and specifically, you know, how close are we to sort of what you might consider to be, you know, the absolute low lead times at which point you just -- you wouldn't see lead times getting any worse.

The -- this is Bill George. The lead times today, depending on the product family, with the higher volume, more popular products, we're holding lead times in the 3-6 weeks, depending on the particular product family. There are a few products that with our models we build to order, and that would be manufacturing cycle times. But typically the high volume commodities you're look at lead times of six weeks across the industry and we don't see any particular change in the near-term on that.

Is that about as low as it can get or can it get down to sort of as low as 2-4?

We ship a lot of stuff in the 2-4-week range now.

Okay. And then the last question is just in terms of the December quarter guidance can you give us a sense, are most of the end markets expected to be down that 3-5% or are there certain end markets that are going to be worse, I ought to expect wireless is probably the end market with the best outlook.

Wireless appears to be holding. Computing, obviously, it's not as robust as previously everybody in the industry hoped for. Christmas will have a big say in this whole thing. If the Christmas season is better than the turns opportunities, we'll continue throughout the quarter. Typically after Thanksgiving, you get into the first week of December, and that's when a lot of the turns opportunities start drying up. If it's a better season like we had even in last years, the turns continued throughout the quarter. Automotive will be up for us in q-4. Coming off the season, it will be down in Q3. In the consumer space, the gain consoles -- game consoles which were very strong in Q3 preparing for Christmas, continues to be strong at least so far in Q4.

Okay. Great. Thank you.

Again this time if you'd like to ask a question, police press star 1 on your touch tone phone. Your next question comes from Jonathan Joseph. Please state your company name.

Yes. Salomon Smith Barney again. John, I want to ask you a bit just to follow on Quinn's question with regard to December, seasonally, I'd like to ask about the March quarter. Would we expect it to be down, flat, up? What would you expect wireless to do, P.C. to do, just sort of on a normalized basis and then if you could give a little bit of English one way or the other whether we're sort of heading in a normal seasonal increase, decrease, whatever in the first quarter?

I think if we have a good Christmas season, our inventories should be in line, our inventories in the end markets, I think there will and lot of pressure to drive them low, which could set us up for least a flat or -- flatish type of quarter. In other words, Q1, not a decline. Tip [INAUDIBLE], the wireless market Q1 is not the strongest market quarter for them.

Uh-huh. And so wireless, you would normally see some sort of sequential decline?

That's the typical pattern, and for many years, judging that market.

Okay. And what percent of revenues is wireless? I'm sorry?

Wireless is about 11, 11% of revenues. If you think P.C. is a little weak in the December quarter could it be flat in March? I know you don't have much visibility. I'm just trying to develop some sort of visibility myself with regard to whatever you might see. My experience on P.C.s and here again, it comes from the hard disk drive sectors, it picks up after the first of the year. It dies down right around Christmas, right before and it will pick up after the first of the year out through April usually then by the end of April it starts to trail off again. So, you know, it should offset the wireless if there is any decline in the wireless. It should offset that sector.

Okay. Thanks very much.

David Bitterman, you may ask your question and please state your company name.

Yeah. My question has been answered. Thank you.

And Matt Zolin, you may ask your question. Police state your company name.

More restructuring payments that have yet to be funded or have all those been funded at this point?

This last quarter we funded about $6 or $7 million in restructuring payments and there's about $12 million more to go in total.

Will those all be paid in the fourth quarter or fall into the next year?

It's about half-half. Half in the December quarter then the other half by the end of March. I expect to be totally finished.

Thank you.

You're welcome.

Thank you. William Matthews, you may ask your question and please state your company name.

Canyon Capital, and just most of my questions have been answered but just curious, what's the latest conversations with the rating agencies and what can we expect on that front going forward?

I had a discussion with both of them, and as you know, we've applied for our -- the transfer from the Nasdaq, national market to the Nasdaq small cap, and discussed that with both of them, and none of them have said that there's any issues with them, you know, in relationship to that, so I don't see any issues coming from them. I talked to them about month just to make sure that they are up to date on what's going on.

Okay. Great. Then just a housekeeping, when you talk about capacity utilization rates before, what's the total number of facilities worldwide?

We have 8 manufacturing locations in total.

And are any of those assembly and test packaging or are they all --

Three are assembly test, five are fab.

Okay. Great. Thank you.

Melissa, we have time for one more question?

Thank you. You may ask your question and place state your company name.

Sure. It's Growth and Securities and good luck to everybody. Welcome, Scott. A quick question for you. As you guys make progress developing business that at least is originally sourced overseas is there any earnings or cash repay the reagency issues that you would expect?

I look at -- this is John. I look at that and don't expect there is going to be any. As most companies instead of putting equity into a lot of the sub-s, we put loans and intercompany agreements. So repatriating cash, so far it's not been an issue. With the amount of N.O.L.s we have if we have to do that, some locations where we don't have that capability, I've got more than enough to offset it so it's not an issue.

Thanks. Okay.

At this time I would like to thank you all for attending the call, and thank you very much, and we'll be talking to you in another quarter. Goodbye.