安森美 (ON) 2004 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS] I would now like to introduce your host for today's conference, Mr. Ken Risvi.

Sir, you may begin.

Thank you, Matt.

Good afternoon and thank you for joining ON Semiconductor's fourth quarter 2004 conference call.

I am joined today by Keith Jackson, our CEO, and Donald Colvin, our CFO.

This call is being webcast on the Investor Relations section of our website at www.onsemi.com and will be available on our website for approximately 30 days, along with the earnings release for our fourth quarter and 2004 annual results.

Our earnings release in this presentation includes certain non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP are in our earnings release and posted on our website in the Investor Relations section under the heading, "Annual Reports and Financial Releases."

Now I'd like to highlight our upcoming event calendar.

We will present at Thomas Weisel Partners Technical Conference on February 9th; the CSFB Semiconductor Conference on March 4th; the Raymond James Technology Conference on March 7th; and the Morgan Stanley Semiconductor Conference on March 9th.

During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company.

The words "estimate," "intend," "expects," "plan," 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 relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10-K and other filings with the SEC.

The company assumes no obligation to update forward-looking statements to reflect actual results or change assumptions for other factors.

Now let's hear from Donald Colvin, our CFO, who will provide an overview of the fourth quarter.

Thank you, Ken, and thanks to everyone who is joining us today.

ON Semiconductor Corporation today announced that total revenues in the fourth quarter of 2004 were $306.8m, a decrease of 4% from the third quarter of 2004.

During the fourth quarter of 2004, the company reported a net loss of $88.3m, or approximately 36 cents per share.

That included a loss on debt prepayment of $96.3m, or 38 cents per share, and the restructuring, asset impairments, and other charges of $5.6m, or 2 cents per share.

During the third quarter of 2004 the company reported net income of $15.7m, or 4 cents per share, which included a loss on debt prepayment of $3m, or approximately 1 cent per share.

On a mix-adjusted basis, average selling prices in the fourth quarter of 2004 were down approximately 1% from the third quarter of 2004.

The company's gross margin was 32.1%, approximately flat as compared to the third quarter of 2004.

EBITDA for the fourth quarter of 2004 was a negative $39.7m and included the $96.3m loss on debt prepayment and restructuring, asset impairments, and other charges of $5.6m.

EBITDA for the third quarter of 2004 was $64.2m, and included the $3m loss on debt prepayment.

A full reconciliation of this non-GAAP financial measure to the company's net income or net loss, our net cash provided by operating activities prepared in accordance with U.S.

GAAP is included on our website and in our earnings release under related Form 8-K filed with the SEC today.

The $96.3m loss on debt prepayment in the fourth quarter of 2004 was due to the company's repurchase of $325m principal amount of a senior secured note and the refinancing of its senior secure credit facility and included a $70m cash charge.

The $5.6m in restructuring, asset impairment, and other charges for the fourth quarter of 2004 included approximately $2.3m of cash charges, primarily related to contract termination and severance costs, and approximately $3.3m of noncash charges for asset impairment.

During the fourth quarter, cash, cash equivalents, and short-term investments decreased by $46.1m from the end of the third quarter of 2004 to $185.7m.

During the fourth quarter, approximately $70m of cash was used as part of the company's repurchase of $325m principal amount of its senior secured notes and the refinancing of the senior secured credit facility.

At the end of the fourth quarter, day sales outstanding decreased by four days to 39 days.

Due to the proactive management of our manufacturing capacity, we were able to reduce total inventory, internal and distributor inventory, by approximately 9% of $35m.

Of the $35m total inventory reduction, approximately two-thirds was attributable to a reduction of inventories at distributors and one-third was attributable to a reduction of internal inventories.

Capital expenditures during the fourth quarter were $17m compared to $16m in the third quarter of 2004.

Now I would like to turn it over to Keith Jackson, our CEO, for additional comments on the business environment.

Thanks, Don.

During the fourth quarter 2004, the computing segment remained strong growing by approximately 6%, in dollar terms, from the third quarter and represented approximately 28% of sales.

Wireless and automotive remained flat as a percentage of sales at 17% and 19%, respectively.

Consumer represented approximately 18% of sales in the fourth quarter, down slightly from 19% of sales in the third quarter due to a more muted holiday season.

Industrial fell to 13% of sales in the fourth quarter from 14% of sales in the third quarter due to a continued slowdown within the semiconductor capital equipment markets.

Networking fell slightly as a percent of sales to approximately 5% from 6% in the third quarter.

During the quarter, sales to our largest OEM customer, Motorola, grew by over $2m to approximately 9% of sales in the fourth quarter, up from 8% of sales in the third quarter of 2004.

Our top five customers, excluding distributors for the fourth quarter, were Delphi, Flextronics, Intel, Motorola, and Siemens.

On a geographic basis, our contribution this quarter from sales in Asia, excluding Japan, increased by 100 basis points to 53% reflecting the increased strength we saw in our computing business.

Sales in Europe represented approximately 17% of our total sales, up approximately 100 basis points from the third quarter.

Our sales in Japan remained flat at 5% of sales, and sales in the Americas decreased by 200 basis points to 25%, mainly due to softness in the industrial and automotive markets.

Looking across the channels, direct sales to OEMs increased by approximately 200 basis points to 43% of sales, the EMS channel remained flat at approximately 11% of sales, and sales to the distribution channel increased by 200 basis points to 46% of sales.

We also estimate that approximately 10% of sales through the distribution channel were for third-party logical services for the EMS channel.

Now I'd like to provide you with some details on the progress we've made in several key markets.

In the portable and wireless space we introduced four electromagnetic interference filter arrays to enable robust signal integrity in the advanced cell phones that feature high resolution displays, cameras, and other popular options.

We are manufacturing these devices in specialized packaging that enables optimal filtering performance and reduces board space by 40%, replacing up to 24 discrete components.

In 2004 we grew our filter product family revenues by over 300% compared to 2003, and currently this business represents over $1m a month in average sales.

As we move into 2005 we expect continued strength and growth within this product family.

Our high performance low voltage analog switches continued to gain momentum with market leaders in the cell phone space.

We are the first to market with two lead-free MicroBump analog switches used for high-end, multimedia cellular phone applications such as audio switching.

Our analog switches represent another high opportunity growth for ON.

In 2004 this product family grew revenues three times that of 2003, and currently this product family is averaging over $1m in monthly sales.

Overall, our portable and wireless revenues grew by approximately 47% in 2004, and this market provides us with an expanding array of opportunities in 2005.

We have continued to add to our portfolio of products in this market, such as the EMI filter arrays and lead-free MicroBump analog switches previously discussed, and also are offering leading-edge audio amplifiers, white LED drivers, MiniGates, DC-to-DC regulators, and low RDS (ON) FETs.

To further strengthen and get expertise in this segment, last week we announced our plans to establish a Solutions Engineering Center in Seoul, Korea.

With this center, we will be able to provide in-depth development platforms and enhance product support to a growing community of cell phone and handheld electronic manufacturers in Korea and surrounding areas.

We have plans to have the center operational by the second quarter of 2005.

Our customers have expressed their appreciation for our efforts to provide dedicated support in close proximity to their manufacturing and design facilities.

During the fourth quarter we also established a joint laboratory with Haier, a leading electronics manufacturer in China, to drive improved power management designs for an array of consumer goods.

In the automotive segment, we've introduced a line of local Internet connect network and controller area network transceivers to meet the escalating demands for networking capabilities within the automotive sector.

We also expanded our portfolio of industry-leading voltage regulation ICs for this sector.

In the fourth quarter we introduced the industry's first 250-volt silicon Schottky that simplifies system design and offers a more cost-effective solution for the growing number of 200-250-volt applications for the automotive as well as consumer and computing industries.

During the quarter, Avnet presented us with its Asia Dragon and Marketing Synergy Award.

The distribution channel continues to play a key role in our global strategy, and earning awards such as this demonstrates our commitment to winning with our partners.

We also earned the Quality Showcase and Excellence Award from the Arizona Quality Alliance.

It's always an honor to receive recognition for our ongoing pursuit of quality and manufacturing processes and customer support.

Now I'd like to turn it back over to Donald for operational updates and our forward-looking guidance.

Donald?

Thank you, Keith.

During 2004, we aggressively improved our balance sheet through a series of financial transactions.

In our latest transaction, which was completed in December, we repurchased approximately $325m of our 12% to 13% senior secured notes.

With new borrowings of approximately $325m under an amendment and restatement of our senior secured credit facilities.

The amended and restated $645.5m senior secured credit facility bears interest at the rate of LIBOR plus 300 basis points.

In connection with this transaction, we also entered into a hedging structure, which fixes a portion of our variable-rate senior-secured credit facility, minimizing the impact of an increase in interest rates.

During the whole of 2004, we refinanced approximately $760m of high-interest-bearing debt and eliminated three high-yield bonds.

This is projected to reduce our annual cash interest expense by approximately $50m in 2005 as compared to 2004, and it's expected to reduce our net interest expense from $34m in the first quarter of 2004 to approximately $15m in the first quarter of 2005, a year-over-year savings of over 55%.

In addition to the extension of the debt maturity, the financial progress made during the year to improve our capital structure should enable ON Semiconductor to generate additional cash flow and increased earnings per share on a go-forward basis.

During 2004, we continued our focus on cost-reduction programs.

We initiated several programs that helped improve our overall gross margins by 430 basis points as compared to 2003.

Some of these programs included a reduction in freight costs, which saved over $9m; a reduction in our supply costs, which saved over $4m; the optimization of our manufacturing lines, which saved over $10m.

In 2005 we will benefit from the closure of our AG [ph] facility as previously announced.

The movement of our assembly and test functions from the Czech Republic to Asia.

Also in 2005, we have plans in place to reduce the number of subcontractors and foundry partners and anticipate selectively bringing in-house specialized high-cost packages.

Based upon booking trends, backlog levels, and estimated current levels, we anticipate that total revenues will be down approximately 4% to 5% sequentially in the first quarter.

Backlog levels at the beginning of the first quarter of 2005 were down from backlog levels at the beginning of the fourth quarter of 2004.

Backlog represented approximately 85% of our anticipated first quarter revenues.

Although we require approximately 15% turns during the first quarter to achieve our revenue guidance, January was a strong turns month and represented over 50% of the total turns requirement for the whole quarter.

We expect that average selling prices will be down approximately 2% to 3% in the first quarter of 2005.

We also expect cost reductions to partially offset a decline in average selling prices and that gross margins will be approximately 30% in the first quarter of 2005.

For the 2005 calendar year, we expect cash capital expenditures of between $60m to $65m, and for the first quarter of 2005, we expect cash capital expenditures of approximately $15m.

For the first quarter, we expect SG&A expenses at approximately 13% of sales, and R&D expenses at approximately 8% of sales.

We expect overall SG&A and R&D expenses to increase slightly on a dollar basis over Q4 '04 due to expenses that accrued in the first part of the calendar year such as FICA and vacation accrual.

We anticipate that net interest expense will be approximately $15m for the first quarter of 2005.

We also expect common shares outstanding to be approximately $255m, and that preferred shares may be convertible into approximately 45 million shares in the first quarter.

The [indiscernible - highly accented language] on contingent convertibles, which became effective in the fourth quarter of last year, may result in the increased share count of approximately 27 million shares in the first quarter and to the diluted share count, we can also add 6 million shares from stock options.

Further details on share count and EPS calculations are provided regularly in our 10-Qs and Ks.

In the fourth quarter of 2004, we saw a significant reduction in our sale end units -- sale end volumes -- to a level we have not seen since the second quarter of 2003.

We believe that this decrease in units shipped is a reflection of the overall reduction in our supply chain inventories.

In addition, the fourth quarter of last year marked the first quarter in over a year where we have had sequential increase in turns business.

We are confident that in 2005, like in 2004, we will continue to deliver improved business performance.

With that, I would like to start the Q&A session.

[OPERATOR INSTRUCTIONS] Our first question is from Michael Masdea of Credit Suisse First Boston.

Your question, please.

I guess the first question, Don, what was your actual turns last quarter?

I know you think you're shooting for 10%?

We came in just slightly under that.

Okay, and as you think about it, going forward, you said you did about half your turns already, which sounds like it's given you guys confidence.

How much are you guys factoring in Chinese New Year and how did that play out last year?

Is that a factor in the turns that you're seeing right now?

It's an excellent question, and it's why you find us a little bit cautious after a fast start, but we know the Chinese New Year is later this year than last year.

It's taking place in the second week of February, so we do anticipate a slower second week and a stronger March.

So we have factored that into our projections.

And what are your customers' mentality?

Are they focused now on -- fully on inventory or are they starting to look beyond that?

Are they looking at costs more than anything else?

What are they focused on?

Michael -- Keith Jackson.

Basically at this point I think the customers have gotten their arms around the inventory situation.

Pricing is actually stabilizing.

The decline there is much more muted than we saw in the fourth quarter, and people are starting to pay attention, really, more to their planning of the new platforms and the new builds, as we head into the second quarter.

The mix side, Donald, did you say what that did -- or Keith?

Did that change a lot last quarter?

Is it going to change much this quarter?

Anything subtle more that we can get besides the end-markets you gave us in the first half?

Yes, I think the end markets are pretty indicative of what's going on.

We certainly will see some minor shifts as we get in the first quarter.

We typically see a little bit more in the industrial side of the business, possibly the networking side of the business, but I don't expect anything dramatic from the fourth quarter.

Great, thanks, guys.

Our next question is from Christopher Danely of JP Morgan.

Your question, please.

Thanks, guys.

To start off, can you just talk about where you've seen some strength in January in terms of end markets or products?

We're seeing strength as compared to fourth quarter basically in the distribution channel.

So that's a pretty broad channel there.

Again, we did some pretty aggressive inventory things out there but, on a broad basis, we're seeing resales continue to strengthen.

From a particular end-market perspective, I'd say again, trends are pretty much moving in concert with each other.

So nothing is jumping out yet.

And in terms of utilization rates and inventory at ON Semi, it came down a little bit.

What are your plans for that inventory going through the first half of the year and how that affects utilization rates?

I think we basically see, of internal inventory on an absolute dollar basis, staying roughly where it is going into the first quarter and the second quarter, and we expect our utilization to be flat to up in the next quarter -- our internal utilization.

So we don't believe there's any further big reductions in both capacity utilization or internal inventories required, and we -- as you know, it did take down a significant amount of internal inventory in the fourth quarter.

Great, and so it sounds like things are flattening out here.

I guess if we get back to normality in Q2 and then the rest of the year starts to pick up, how would you expect your gross margins to trend, roughly?

Well, I think we gave a pretty definitive guidance to gross margin for the first quarter.

We said 30%, approximately 30%.

A lot depends on how prices move and how demand stacks up.

Right now we don't get all that much visibility from our customers for the second quarter, so it's a bit of a stab in the dark.

I know that you have your own thesis for the second quarter; we are a bit undecided.

But we kind of see things kind of drifting flat-ish to up-ish if we get an increase in capacity utilization and a firming of our backlog.

I guess, to make a short story long, Donald, would you expect your gross margins to trend with revenue, I guess, for the rest of the year?

Perfectly.

Okay, great, thanks, guys.

Our next question is from Tim Luke of Lehman Brothers.

Your question, please.

Don, I was wondering if you could remind us -- usually, in the first quarter, how the linearity looks and, to the extent that is March usually somewhat stronger than January, and what are your thoughts on how that might play out this year?

Well, Tim, if that plays out like that, I'll be a very happy man.

We are basically assuming approximately the same weekly run rate -- a January, February, and March.

We don't assume this to be a very much back-ended quarter.

We had assumed that we would have more -- stronger bookings, when necessary, in the first month to accommodate for what we see as a hole in bookings in February, and we were happy to see that happening.

So we basically think it's basically a 30-30-40 split.

So we are not projecting a strong finish to the quarter.

How does that reconcile with the way you -- if you've done half the turns already (inaudible)?

Well, we're expecting a little bit of a hole in the middle of February as far as bookings are concerned, and we expect the February shipments to be similar to the January shipments on a weekly basis, and we have a 4-4-5 calendar quarter.

So we're not expecting any acceleration in the March quarter.

And just to clarify how you saw the tax level, going forward, through the --

Tax level -- we see that as very stable -- right about $1.5m or so per quarter.

Thank you very much.

Our next question is from Mark Edelstone of Morgan Stanley.

Your question, please.

Good afternoon, guys.

Hey, Keith, can you just give us a little bit of color on the order activity that you saw as you went through the fourth quarter and also in January in two verticals -- one being wireless and the other being automotive?

Okay, I'll give -- actually comment in total first and then talk about within the two that you just talked about.

We actually have seen 12 weeks now of increasing bookings rates.

So we've definitely seen those accelerating through January and actually through Q4 in total.

Book to bill was improved in Q4 and very close to one.

When you look at those two segments -- automotive and the wireless piece of it -- the wireless piece of it was clearly stronger and continues to be stronger than the automotive sector, which is much more flat in nature.

And then is there any end-market pattern to the strength that you see in the uptick in turns in January?

No clear patterns at this point.

They tend to be coming in approximately the same mix that we sold in Q4.

And just one last question -- if you look at where your weeks of inventory are now in distribution, obviously, they came down rather sharply in the fourth quarter.

Where do they stand now relative to normalcy?

Our model is for a 13-week distribution inventory.

That is where we've pretty much tried to keep it all year.

That's where it now and, again, we see kind of maintaining that as we go forward.

We do think that inventory will come down a bit more in the first quarter but not very much.

Great, thanks a lot, guys.

Our next question is from Craig Ellis of Smith Barney.

Your question, please.

Thank you and good afternoon.

Just looking at the pricing, can you give us an idea of how you saw pricing variances across the portfolio, given that we'll be down 2% to 3% on average in the first quarter?

That's fairly predictable.

In the multi-sourced, discrete types of products, we saw a little bit more pressure.

Certainly less pressure in some of the more proprietary and analog type of products in power management, but it's not a huge deviation.

You saw that we were down last question approximately 1%, and we're looking for that to be maybe 2% to 3% this quarter.

And, again, it's not any one business or any one piece, but it's just more the nature of the type of product.

And did I hear you correctly earlier when you said that pricing had firmed up a little bit, so we might not expect the same type of pricing pressure as we think, out towards the second quarter?

Yes, we saw some fairly significant pressure on pricing in the fourth quarter.

That pricing pressure is less in the first quarter.

I will also say again, just looking at behavioral -- we took nearly 10% of inventory out of our supply chain in the fourth quarter, which means even with flat run rates there's people that are going to have to start doing some rebuilding.

So I think that goes hand in hand with expectation that bookings rates are coming up; utilization is going to be coming up, and so you just don't have the same amount of pressure on prices.

Where are order lead times right now, Keith, on average?

Seven, eight weeks timeframe.

Okay, and then lastly -- I think last quarter you had outsourced -- or in the third quarter -- outsourced about 29% of total manufacturing.

Where are we right now and what's expected in the first quarter?

We're down to about 26% of outsourcing.

So we did bring some of that in.

It helped us keep the utilization up primarily in the assembly test part of our operations.

I would expect to see some more strength in that number, coming down in Q1.

I don't have a specific projection at this point.

Okay, thanks a lot.

Our next question is from Steve Smigie of Raymond James.

Your question, please.

Great, thank you.

I was hoping you might be able to just give us a housekeeping item -- breakout of the analog, standard components, and MOS power, et cetera?

We can certainly do that, although we'll have to give you approximate numbers.

I don't have those specifically in those terms today.

The MOS power business in Q4, approximately 20% of our total; the standard components, approximately 45%; and the analog and high frequency business, approximately 36%.

Okay, and then in terms of the inventory clearing out or that you've been working down, have you seen any sticking points in one category or in other where maybe there's still more inventory out there in the standard components versus analog, something like that?

No, we really don't.

I think, again, we were pretty aggressive across the board in our inventories, and although we do expect them to come down a bit more in Q1, there are no problem areas or specific areas that differentiate themselves.

Okay, great, and another housekeeping item -- did you give us the actual utilization in the quarter?

We did not.

The back-ends were approximately 80%, and the front-ends were less than that.

We did some fairly aggressive internal inventory reduction in the front-ends during the quarter, and in the back-ends, as we mentioned earlier, we pulled more of the manufacturing in from outside to keep that higher.

And last question -- I guess you mentioned improving bookings -- is there anything in design wins that perhaps could give you some indication of the future?

I know Donald said it was a little bit of a stab in the dark, but is there anything there that lends you some more optimism about the rest of '05?

Yes, again, and to understand Donald's comment, we've got something like 16,000 products or so, so keeping track of the trends on the ups and downs for all of them is not an easy task.

I mentioned a couple in the script where we're seeing some real strength basically in the portable sector with our filters and switches.

We are also seeing good strength in most of the areas around computing and PCs, and we've got several new offerings of products in both of those areas.

Thank you very much.

[OPERATOR INSTRUCTIONS] Our next question is from Ramesh Misra of C.E. Unterberg.

Your question, please.

Good afternoon, gentlemen.

In terms of gross margins, if I remember correctly, your Rhode Island fab will be going offline in this current quarter.

So do you expect gross margins to actually trend above the 30% number a little more than just the revenue growth rate in Q2 and beyond?

I think you're spot on.

The Rhode Island fab will close down -- I think it's officially April -- and there will be, obviously, savings in the second quarter with a full quarter of savings in the third quarter.

How we account for some of these savings is complicated by the new GAAP rules, which means you've got to pay things while you can.

Termination checks in the quarter, and you account for them in the quarter, you don't accrue for them in advance.

So the full quarter benefits will be realized in the third quarter.

And, yes, this will help our gross margin as bringing inside expense of subcontracting will help our gross margin.

But as I mentioned in the reply to Chris Danely, the gross margin is a function also of the revenue and, as we stated, we're not giving specific guidance to the second or the third quarter.

But what I can confirm is that these actions will be margin-enhancing, and we believe that, going forward, the detailed list of cost reductions that we will implement this year should be able to hedge us against normalized price reduction.

Okay, and then can you talk a little bit about the base of cancellations -- how was that meaningful in Q4 -- any particular trends that you might want to highlight?

Yes, there's really nothing particularly meaningful there.

There were no big surprises or major cancellations.

It's what I call the "normal noise" with a lot of our automated and electronic interfaces we have with our customers.

Certainly, the number of cancellations has diminished as we got into the first quarter and see the net of that being increased -- net bookings.

Just to pick up from what Keith said, we are encouraged because the first quarter did see, for the first time in more than one year, a positive change in direction for the turns business.

So our short-term business did change.

We also had a very low level of units ship, and that has, in the past, proven itself to be an important indicator, a potential indicator of an inflection point.

So in that environment, we did not really see any disruptive behavior as far as cancellations are concerned.

Got it -- and then, finally, Keith, CapEx last year was generally front-end loaded.

The $60m to $65m -- any particular trends, any particular areas that you intend to focus on with that CapEx?

Is it going to be linear throughout the year or could you talk a little more on it?

Yes, I can.

Most of that capital will be going into new technology capabilities and into assembly test capacity increases, particularly on new packages where we're seeing dramatic growth.

It will be down year-on-year in total, and as opposed to last year, which was front-end loaded, we will probably see some acceleration.

We're starting off at about $15m, and if we're going to do $60m to $65m, it will have to get a little bit stronger than that toward the end of the year.

Okay, thanks very much, guys.

Our next question is a follow-up from Tim Luke of Lehman Brothers -- your question?

Thanks, I was just wondering how you felt that pricing would look as we move through the next few quarters in terms of if you guide down a couple of points for this quarter.

What are your expectations there -- or Keith?

I'll give comments, and I'll let Keith join in.

This is Donald, not Keith.

I think we know that, with that accent.

We said a couple of points [indiscernible - highly accented language] of gross margin, that will be 50% from half units, half price, in the first quarter and, as Keith mentioned, we are seeing, from the raw data, a reduction in price pressure in the first quarter compared to the fourth quarter.

Some of our competitors were probably scrambling for business in the fourth quarter.

We have seen a fall-off of our pricing pressure classifying that was normal.

So normally, if I look in the past, it kind of trails off in the second and third quarter as we go through the year and, as I keep mentioning to people, to me, one of the head-in-hands that's benefiting us is the weak dollar, because we have a lot of competition that is European and Japanese-based, and we see their price aggression being clearly muted, and you just need to look at some of the results of the European companies complaining about the weak dollar and the margin pressure that gives -- that is something that is clearly helping the overall pricing environment.

I would only add to that -- again, we have seen what appears to be an inflection point on the bookings side with those starting to strengthen and, typically, your pricing does go hand in hand with the direction on that bookings number as opposed to your billings number.

So we would expect that pressure to continue to ease as we get through the year.

Could I just ask as a follow-up -- in terms of the degree to which you guided lower versus what you appear to saying in terms of strength of bookings at the beginning of the quarter -- how did you sort of balance that on, Don?

Just to repeat what I said -- we kind of expect the linear shipping quarter, which means 30-30-40 -- no acceleration in the weekly run rate in March.

We have projected and I'm happy that it happened, and it's slightly ahead of our projections, a much more front-end booking quarter because we expect a hole in the bookings in the middle of February with the Chinese New Year.

Thanks again.

Our final question comes from Todd Cooper of Stephens Incorporated -- your question?

Yes, gentlemen, you've been very aggressive with regard to refinancing initiatives and have done a good job, but I think all would agree you're not yet where you want to be.

Are there any more, as I'd call "easy moves," to be made or now is it a matter of improving cash flows and possibly looking to equity markets, if the stock price cooperates, to further reduce the debt?

There still are things that we can do.

By the way, nothing is ever easy.

Just because we've done a lot doesn't mean it's easy.

A bit of luck and a bit of good timing and a good business has helped us.

Going forward, we see the following financial strategy -- first of all, we want to increase our operating cash every quarter, a cash balance every quarter, and the great advantage of this latest transaction is it frees up a lot of cash flow, going forward.

And if you look at our year-over-year cash balance was essentially the same.

So looking at what our average EBITDA has been, about $60m or so, third quarter over the last 12 months, and if our cash capital requirements are $13m or so for interest expense, and about $15m for cash and for capital expenditures, we have approximately $30m left over.

So our financial strategy is to grow our cash through our operating performance, and we believe that we can execute to that strategy.

We will be opportunistic.

There are opportunities, and there still is some low-hanging fruit, so we will work and see how the markets perform, but we are not, at this moment, intending to go to the equity markets to raise anymore money, and our financial projections comfort us that we are a solid company that generates good EBITDA and, over time, the building of our cash balance will be the best way to offset the weight of our debt.

I agree, and thank you very much, Donald.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may now disconnect.

Good day.