安森美 (ON) 2007 Q4 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by.

  • Welcome to the Catalyst Semiconductor conference call discussing fiscal fourth-quarter and year-end 2007 financial results.

  • During the presentation, all participants will be in a listen-only mode.

  • Afterwards, you will be invited to participate in a question-and-answer session.

  • (OPERATOR INSTRUCTIONS).

  • As a reminder, this call is being recorded Thursday, June 14, 2007.

  • I would now like to turn the conference over to Mr.

  • Pierre Hirsch.

  • Please go ahead, sir.

  • Pierre Hirsch - IR

  • Thank you, operator.

  • Good afternoon and thank you all for attending Catalyst Semiconductor's conference call on financial results for the fourth quarter of fiscal 2007, which ended April 29, 2007.

  • With me today is Gelu Voicu, President and Chief Executive Officer; Steve Miller, Corporate Controller, who will be going through the details of our financials; and Scott Brown, Vice President, Marketing, who will be available to respond to questions as necessary.

  • By now, you should have received a copy of today's news release that was distributed at the close of regular trading.

  • A copy of this may be accessed either on the Company's website at www.catsemi.com or by calling 408-542-1051 to have a copy faxed to to you.

  • Before we begin, please note that during the course of this conference call, management will be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.

  • These forward-looking statements may involve judgments based on information that is available now but is highly likely to change over time.

  • The Company will not necessarily inform you if and when those judgments and the underlying information change.

  • The Company policy is to provide material information only in news releases or filings with the SEC.

  • Additional information concerning factors that could cause actual results to differ materially from those in today's forward-looking statement are contained on the Company's annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC, as well as in today's news release and other filings with the SEC.

  • I would add that the Company operates under the requirements of Regulation FD.

  • As a result, Catalyst provided advance notification of this conference call by way of a news release issued on June 4, 2007.

  • Like most companies, today we will be taking questions only from securities analysts and institutional portfolio managers, but the complete call is open to all interested parties on a listen-only basis.

  • The Company will continue to talk with investors individually and in small groups, but those discussions will be limited to historical and nonmaterial aspects of the business.

  • If you are interested in such a meeting, please contact me at 415-692-3060.

  • With that, I will now turn the call over to Gelu Voicu, Chief Executive Officer.

  • Gelu Voicu - President, CEO

  • Thank you, Pierre, and good afternoon to you.

  • As you can see from our news release, we had excellent revenue growth in the fourth fiscal quarter and the fiscal year 2007 as well.

  • Both our E Square business and our emerging analog mixed-signal business were up sharply from both the year-end-ago period and the third fiscal quarter.

  • At the same time, margins were temporarily impacted by lower revenue from high-margin Flash products and some inventory write-offs due to the transition to the 0.35 micron technology and products not compliant with the new green environmental standards.

  • Here are some additional highlights.

  • We achieved the highest quarterly and annual revenue since the technology industry bubble burst at the end of the calendar year 2000.

  • As a result of our successful migration to 0.35 micron technology, we were able to ship a record number of units in the fourth quarter and for the full year, and mixed-signal products saw their greatest progress to date, growing sequentially by 44.4% and reaching 10.3% of total revenue, which occurred on a strong increase in the total revenue base.

  • Let me provide a bit more detail on some of these developments.

  • Total units sold for the fourth quarter rose to 154 million, up sharply from the previous record of 130 million units in the third quarter, 122 million in Q2 and 99 million in the same quarter a year ago.

  • The E Square business grew to a record $15.6 million in the fourth quarter versus just under $14 million in the third quarter, $13.8 million in the second quarter and $11.6 million in the same quarter a year ago.

  • This increase were offset a bit by our Flash sales, which declined 18.3% from the third quarter.

  • The best news of the quarter was the traction gained by our mixed-signal business, which generated $1.9 million in revenue, up from $1.3 million in each of the past two quarters.

  • As you can see, mixed-signal has hit a key milestone of representing at least 10% of total revenue in the fourth quarter.

  • We believe our new product line of Quad-Mode LED drivers, which is continuing to attract more and more interest, will help us to further grow from this base.

  • As you know from our prior comments, virtually any mobile device using an LCD display is a target for these Quad-Mode products -- cellphones, medical equipment, handheld devices and GPS navigational systems.

  • Last month, we announced that our Chief Financial Officer would be leaving Catalyst to assume a similar position with another company.

  • Tom's last official day was May 31st, although we retained his assistance through a consulting agreement to complete the year-end audit.

  • Our search for a successor is well underway, and we are interviewing a number of potential candidates within the same public company experience.

  • We have built a strong financial team, and I am confident that they are capable of leading us through this transitional period.

  • Now, Steve will run through the financial details.

  • Steve?

  • Steve Miller - Corporate Controller

  • Thanks, Gelu.

  • Total revenues for the fourth quarter were $18.4 million, up 12.1% from $16.4 million in the third quarter and $16.3 million in the second quarter and up 29.7% from the fourth quarter a year ago.

  • For all of fiscal 2007, we reported total sales of $66.4 million, up from $60.2 million in fiscal 2007.

  • As Gelu previously mentioned, unit sales volume rose to record levels for both the quarter and the full year as well.

  • However, the overall ASP slipped slightly to $0.119 per unit, from $0.126 in the third quarter and $0.134 per unit in the previous quarter.

  • Gross margin for the quarter was 30.3% compared with 35.6% in the third quarter, 35.5% in the second quarter and 34.9% in the fourth quarter a year ago.

  • As Gelu mentioned, gross margin was down as a result of a decrease in Flash revenue and the result of the write-off of inventory due to the transition to 0.35 micron technology and products not compliant with the new green environmental standards.

  • We consider this to be a one-time type of event, and we expect our future margins will return to more traditional levels.

  • R&D expenses were $2.1 million in the fourth quarter versus $1.9 million in each of the past two quarters and $1.8 million in the year-ago quarter.

  • The increase from the prior quarters is mainly attributable to higher salaries and benefit expenses, while the year-over-year increase is primarily due to stock option-related compensation expenses.

  • R&D represented 11.4% of revenues compared with 11.7% in the third quarter, 11.9% in the second quarter and 12.4% in the year-ago quarter.

  • Sales, general and administrative expense was $4 million compared with just under $4 million for the third quarter, $3.9 million in the second quarter and $3.4 million in the year-ago quarter.

  • The year-over-year increase primarily reflected stock option-related compensation expense, as well as an increase in headcount in the sales and marketing organization.

  • SG&A represented 21.9% of revenues compared with 24.3% in the third quarter, 23.5% in the second quarter and 24.3% in the year-ago quarter.

  • The income tax provision in the fourth quarter totaled $295,000 compared with $161,000 in the third quarter, $171,000 in the second quarter and a benefit of $216,000 a year earlier.

  • In our last conference call, we projected a full-year tax rate of 64.6% for fiscal 2007.

  • This rate was not realized because of the nondeductibility for tax purposes of incentive stock option-related compensation expense.

  • We recorded a total of $500,000 in fourth-quarter stock option expense compared with $558,000 in the third quarter, $528,000 for the second quarter and none in the previous year.

  • As a result, we are reporting a fourth-quarter net loss of $457,000 or $0.03 per share.

  • This compares with third-quarter net income of $111,000 or $0.01 per diluted share, second-quarter net income of $176,000 or $0.01 per diluted share and $270,000 or $0.02 per diluted share in the same quarter last year.

  • The full-year net loss was $429,000 or $0.03 per share, compared with a net income of $2.6 million or $0.14 per diluted share in fiscal 2006.

  • Turning to the balance sheet, at April 29th we had cash, cash equivalents and short-term investments of $28.7 million as compared with $29.1 million as of April 30, 2006.

  • During the fourth quarter, the Company repurchased 102,395 shares on the open market at a total cost of $365,000 or an average price of $3.56 per share.

  • In November 2006, the Company's Board of Directors authorized the repurchase of up to 1 million additional shares under our continuing stock buyback program.

  • Through the fiscal fourth quarter, 236,995 shares of that authorization have been fulfilled.

  • Working capital at the end of the fourth quarter totaled $42.1 million compared with $43.3 million at the end of the fourth quarter last year.

  • Our current ratio is 4.8, which we believe is indicative of a strong continuing financial condition.

  • We continue to have no debt, other than normal trade payables, which totaled $6.7 million at the end of the quarter.

  • Accounts receivable at the end of the fourth quarter totaled $10.4 million compared with $9.5 million at the end of the fourth quarter last year.

  • I will now turn the call back to Gelu.

  • Gelu Voicu - President, CEO

  • Thank you, Steve.

  • We entered the fourth quarter seeing strength building in our analog mixed-signal line, in our contract manufacturing business and certain segments of our memory business.

  • All of this continued to play out during the quarter, and we believe the base is there for continued growth.

  • I said last quarter that we were confident the recovery was underway, and I believe the growth of mixed-signal sales in Q4 of 44% over Q3 put an exclamation point on what we have been saying.

  • The gains reflect a combination of good traction from our existing LED driver family coupled with the beginnings of success from our new Quad-Mode products, which began turning third-quarter design wins into fourth-quarter revenue.

  • In the cellphone market, we are seeing a trend towards larger LCD displays and phones that emulate the form factor of the iPhone.

  • While we do not claim to be designing to the iPhone, these trends are good for us, because larger displays and displays that are [backpiped] more of the time, consume more power, which leads to an increased portion of the power budget going towards LED backlighting.

  • As this trend occurs, the primary value proposition of our Quad-Mode architecture, namely increased efficiency, becomes more and more significant.

  • Increased efficiency means extended battery life, and our primary Quad-Mode charge pump architecture enables us to offer extended battery life with no trade-off in solution size or cost.

  • While we are happy to report the significant increase in our analog mixed-signal offering, let me make it clear that this is still a relatively new business for us, and we are working from a relatively small revenue base, which means that a handful of design wins or losses can significantly impact quarter-to-quarter comparisons.

  • Even though our fourth-quarter profitability was impacted by what we feel were some one-time type of events, we believe the growth of higher-margin products, coupled with Catalyst's established position as a low-cost producer, will return the Company to a profitable path we and you have become accustomed to.

  • While our Board has a directed policy of not providing specific financial guidance, we are confident in the Company's future, and look forward to report our progress to you as we continue on into fiscal 2008.

  • With that, we will take questions.

  • Operator?

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • John Vinh, C.E.

  • Unterberg, Towbin.

  • John Vinh - Analyst

  • First, a housekeeping question.

  • Can you tell me what revenues and unit shipments were for Flash and what unit shipments for analog, again, is?

  • Gelu Voicu - President, CEO

  • Okay, I will let Steve address that.

  • Steve Miller - Corporate Controller

  • For E Square, we had, as Gelu discussed, $15.6 million in revenues on 143 million units, for an average ASP of $0.109.

  • For Flash, we had $900,000 in revenues on 316,000 units, for an average ASP of $2.90.

  • For mixed-signal, we had $1.9 million in revenues on 10.6 million units, for an average ASP of $0.178.

  • John Vinh - Analyst

  • The first question I had was in regards to your gross margins.

  • You had talked about that some of these things were one-time events.

  • When you talk about one-time, non-recurring events, are you saying that the write-offs and essentially the product transitions, 0.35 are behind you, so going forward that you will expect that your gross margins would be returning to more typical levels?

  • Gelu Voicu - President, CEO

  • That's correct.

  • So what's the question?

  • John Vinh - Analyst

  • So the question is, one, I just wanted to confirm that both the write-offs and also the transition issues are essentially behind you, and that you would be returning to more historical levels.

  • Because I know, over the last several quarters, you had still been going through the 0.35 micron transition.

  • But it seems like at this point, you guys have essentially gotten past that at this point.

  • Gelu Voicu - President, CEO

  • Let's be a little bit more specific here.

  • We have two things going on.

  • It's our effort on engineering side to move to the new processor is the customer side of qualifying the new product.

  • By now, we are done with qualifying customers and ramping up quite significant volume for the low-density memories.

  • We still have to ramp up the higher-density memories, which have high ASPs and will have a less impact on the units shipped.

  • In this metric we are using to measure the conversion, you will see less growth unit-wise, but there's still transition going on for the high-density memory products.

  • John Vinh - Analyst

  • Thanks for the clarification there.

  • My next question is regarding mixed-signal analog.

  • It sounds like you are making some good progress there with Quad-Mode.

  • Can you clarify, were you shipping in volume your Quad-Mode LED drivers here, or are you still in the qualification stage at this point?

  • Gelu Voicu - President, CEO

  • I think Scott cannot wait to answer that question, so I'll let him handle it.

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • I think Gelu saw me jumping up and down on my chair here.

  • Back in Q4, as Gelu alluded, we did start to see some revenues contributed by Quad-Mode, and that was a result of some design wins that we reported back in Q3.

  • But certainly, the overall impact of Quad-Mode was minimal in Q4, and we certainly expect it to be more significant going forward.

  • John Vinh - Analyst

  • Can you give us an update in terms of currently how many design wins you have on Quad-Mode at this point?

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • We don't give out total numbers on design wins, but I can give you an indicator, if you would like.

  • Back in Q4, if you look at our top 10 design wins, seven of those were for LED drivers, and three of the seven were for Quad-Mode.

  • So, bearing in mind that this is a relatively new family, I'd say that's a fairly strong metric.

  • John Vinh - Analyst

  • Also, it seems like kind of a sweet spot or an area that you guys have seen some traction is obviously in handsets.

  • I know you've gotten some traction within the China market.

  • Can you talk about have you made any sort of progress with Tier 1 handset OEMs at this point with Quad-Mode?

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • It's a slower progress with those guys.

  • They generally have a far longer qualification cycle time than -- you mentioned China.

  • We are making some progress and certainly engaging with them, but we do not at this point have a design win logged for Quad-Mode for the Tier 1.

  • John Vinh - Analyst

  • Finally, kind of a big-picture question.

  • Obviously, your top-line growth was impressive, both on E Square and your core revenues and also with mixed-signal analog.

  • I know you guys don't provide any sort of guidance, but can you talk about -- if you look at the revenues for this quarter, have we reached a new plateau for a quarterly revenue run rate going forward, or is this kind of -- this is kind of a little one-time event, and maybe the overall growth trend is trending upwards, but maybe next quarter we might see you come back to slightly lower revenue levels, but still trending on that upward long-term revenue growth trend at this point?

  • Gelu Voicu - President, CEO

  • Well, you are right.

  • We don't provide guidance, but I can tell you that this is a result of a combination of factors.

  • We have what it takes to play into the market.

  • Leveraging the 0.35, of course, it's a matter of market conditions as well.

  • We are encouraged by the fact that everybody was claiming that the first half of this year was a slow market, and here we are; we did very well.

  • If the market holds, I think we will do as good going forward.

  • John Vinh - Analyst

  • You said that your tax rate wasn't achieved because of the nondeductibility of options.

  • Are you updating your tax rate?

  • Should we still be modeling 64.6% going forward, or should we be modeling a higher tax rate at this point?

  • Gelu Voicu - President, CEO

  • Okay, Steve, go.

  • Steve Miller - Corporate Controller

  • Ideally, the statutory rate is 36%.

  • It was trending up in Q3, primarily because of the ISO.

  • So such amounts, as you know, are only deductible when realized on the ISOs -- are only realized -- deductible when realized by the recipient.

  • During the past year, we have implemented measures aimed at making all new grants being nonqualified, thereby reducing the tax impact or what we see on the financials associated with ISOs.

  • Over time, we expect to see a corresponding reduction in the tax impact.

  • So over time, as our profits increase and the ISO expense declines, we will see it moving more towards the statutory rate.

  • John Vinh - Analyst

  • So you would actually see -- so it sounds like your tax rate will come down from that 64.6%?

  • Steve Miller - Corporate Controller

  • Yes.

  • Operator

  • Srida Joisa, J.

  • & W.

  • Seligman.

  • Sang Peruri - Analyst

  • This is actually Sang Peruri from Seligman.

  • Thanks for taking the call.

  • Great to see the revenues growing, especially on the analog side.

  • A couple questions.

  • Can you walk through the gross margins in terms of what was the one-time or the different hits to gross margin that are temporary in nature?

  • How much was write-off, et cetera?

  • Gelu Voicu - President, CEO

  • How much was write-off?

  • I don't think I have the numbers in that kind of details.

  • But, Steve, do you have --?

  • Sang Peruri - Analyst

  • I mean, how many basis points?

  • Was it a 300-basis point hit, 500 for write-off issues?

  • Steve Miller - Corporate Controller

  • Yes, if we look at the gross margin decline quarter to quarter, it's split pretty much 50/50 between inventory write-offs and product mix.

  • Sang Peruri - Analyst

  • There's the three issues.

  • Do you mean one-third, one-third, one-third?

  • Steve Miller - Corporate Controller

  • Well, yes, about that.

  • Gelu Voicu - President, CEO

  • Pretty much like that, yes.

  • Steve Miller - Corporate Controller

  • That's exactly right.

  • Sang Peruri - Analyst

  • So then, about two-thirds of it you will get back.

  • So the margins dropped 4 or 5 points quarter over quarter.

  • You will get two-thirds of that back in the July quarter?

  • Gelu Voicu - President, CEO

  • Well, we hope so, yes.

  • Keep in mind it's also a matter of product mix.

  • We try to leverage our 0.35, and we get aggressive and growing.

  • We might be a little bit more careful in booking lower margin going forward, as we regain some of market share.

  • So it's a lot of factors that you have to take into account.

  • Sang Peruri - Analyst

  • So you said one-third was inventory write-down and then one-third was mix.

  • What's the other third, again?

  • Gelu Voicu - President, CEO

  • We have two types of inventories.

  • We have 0.35-related and (technical difficulty) related, due to the migration from leaded to green parts.

  • Sang Peruri - Analyst

  • So one-third was leaded issue, and one-third was 0.35 issue?

  • Gelu Voicu - President, CEO

  • Pretty much, yes.

  • Sang Peruri - Analyst

  • How much of gross margins was stock comp, as well as how much was stock comp in R&D and SG&A?

  • Steve Miller - Corporate Controller

  • We have very little stock comp in gross margin.

  • The majority (multiple speakers).

  • Sang Peruri - Analyst

  • How much is that?

  • It's usually -- okay.

  • Can you break that out?

  • How much was the stock comp charge for gross margin, R&D and SG&A?

  • Steve Miller - Corporate Controller

  • I don't have that number right with me right now.

  • Sang Peruri - Analyst

  • Okay.

  • Now, the analog revenues -- should we expect this to stay at this level, or is there some initial channel build, and this could drop back down?

  • Gelu Voicu - President, CEO

  • Well, we're hoping for the opposite.

  • We hope to grow.

  • Sang Peruri - Analyst

  • But in the short term, you can still grow -- you don't expect any sort of pullback in this support growth, or it can still continue to grow from this base?

  • Gelu Voicu - President, CEO

  • At this point in time, we think that it's going to continue to grow.

  • Sang Peruri - Analyst

  • What do you think earnings were this quarter, if you backed out stock comp and one-time issues?

  • You kind of had pro forma earnings, if you will?

  • Do you know what that would come out to?

  • Gelu Voicu - President, CEO

  • Well, let's see.

  • We have $500,000 option expenses and another --

  • Steve Miller - Corporate Controller

  • $500,000?

  • Gelu Voicu - President, CEO

  • $400,000?

  • Steve Miller - Corporate Controller

  • Yes.

  • Sang Peruri - Analyst

  • But the other $400,000 -- that's the gross margin impact?

  • Gelu Voicu - President, CEO

  • We think so, yes.

  • Sang Peruri - Analyst

  • Well, if it's $400,000 that's -- okay.

  • So you think gross margins would have been like 32.5% without the one-time issues?

  • Gelu Voicu - President, CEO

  • I would say probably closer to --

  • Steve Miller - Corporate Controller

  • 34%.

  • Gelu Voicu - President, CEO

  • -- 34%.

  • Steve Miller - Corporate Controller

  • Yes, 34%.

  • Sang Peruri - Analyst

  • 34%.

  • I see.

  • Okay.

  • So if you had a 34% gross margin and $500,000 in stock comp, I guess your pro forma earnings are more like $0.04 a share.

  • Is that the right way to think about it?

  • Gelu Voicu - President, CEO

  • Yes.

  • Sang Peruri - Analyst

  • Now, I noticed your cash flow was much larger than that.

  • It was, I think, almost $3 million in the quarter.

  • What's the delta between cash flow and earnings?

  • Should we continue to expect cash flow to be materially greater than earnings?

  • I've noticed in the last few quarters, cash flow has been well above earnings.

  • Gelu Voicu - President, CEO

  • Well, it's a matter of how large the earnings will be.

  • But at this level, yes, you can assume that.

  • Steve Miller - Corporate Controller

  • [A combination].

  • Sang Peruri - Analyst

  • Okay, that makes sense.

  • That's all the questions I have at this point.

  • Thank you very much.

  • Great quarter, guys.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • Steve Baughman, Parvest Asset Management.

  • Steve Baughman - Analyst

  • Can you just talk a little bit more about the Flash business?

  • The Flash business has been relatively stable over at least the last couple of years, kind of in that $5 million annually.

  • Was the April quarter an aberration, or is that business kind of in long-term decline,and we should expect that to trail off?

  • Gelu Voicu - President, CEO

  • Well, this Flash business is a legacy line.

  • We do not do any R&D, and our assessment is that it's going to fade away.

  • We don't know how quick.

  • It has some sort of seasonality; it shows some fluctuations quarter to quarter.

  • I really cannot guess what's going to happen in the coming quarters, and one of the reasons we are putting so much effort into growing the analog mixed-signal is precisely to compensate for this kind of potential lost business in the future.

  • Steve Baughman - Analyst

  • So I think that Flash declined about 25% sequentially, or I think you said it declined about 25% sequentially, Gelu.

  • Is that --?

  • Gelu Voicu - President, CEO

  • 18% quarter to quarter.

  • Steve Baughman - Analyst

  • 18%?

  • Okay.

  • Are you aware of any programs that have been discontinued, products that Flash was shipping into that are no longer there?

  • Gelu Voicu - President, CEO

  • Well, the majority of our Flash business is sold through distribution, and the communication is not that good there.

  • Steve Baughman - Analyst

  • Because that is a very attractive business, right?

  • Gelu Voicu - President, CEO

  • [It is].

  • Steve Baughman - Analyst

  • That has margins that are at least as attractive as the analog and mixed-signal business that's ramping, correct?

  • Gelu Voicu - President, CEO

  • Yes, but you have to realize that it will be a sustainable business at that level, a lot of people will jump on.

  • This is just a result of some legacy designs where the cost of replacing us is probably more than keep using our products.

  • In time, you will expect those products to slowly die.

  • Steve Baughman - Analyst

  • The other question is more of a long-term question.

  • You guys have obviously talked a lot about gross margin.

  • Gelu Voicu - President, CEO

  • Just another comment on the Flash business.

  • I have some data here.

  • In Q1 2007, the revenue was about $1 million.

  • Then it jumped to $1.25 million, then down to $1.1 million, now it's about (inaudible).

  • So it's kind of hard to place.

  • I don't know what's going to happen going forward.

  • It's hard to assume a certain rate of decay; I don't know.

  • Steve Baughman - Analyst

  • On a longer-term question or a longer-term outlook -- and I don't mean to ask when this could happen or when it would happen.

  • But you have talked a lot about your gross margin in the current quarter, and suggested that it can get back up to where it wants in the January quarter, when it was 35.5% or 36%.

  • But if you go back a couple of years, when you were at the revenue levels that you just did in the April quarter, you consistently did high 30's or low 40's gross margins.

  • Are those sorts of gross margins still possible in your business?

  • Gelu Voicu - President, CEO

  • Well, we have two business units here that's kind of competing or contributing to the gross margin.

  • The E Square business is not going to grow that much.

  • Sure, by moving to 0.35, we will get better gross margins.

  • But there's also erosion in the marketplace, and I don't believe that it will grow much better than 30, 35 points.

  • The trick is to compensate that and balance it with the mixed-signal, where we're getting 15%, 20% better margins.

  • The more mixed-signal we add to the picture, the more favorable mix we will have.

  • That's why we're putting so much focus on growing the mixed-signal business.

  • Steve Baughman - Analyst

  • So margins will expand just as mix shifts towards mixed-signal?

  • Gelu Voicu - President, CEO

  • Correct.

  • Steve Baughman - Analyst

  • So mixed-signal currently, even at the relatively low revenue levels it has, still has gross margins that are 15 to 20 percentage points higher than the memory business, or than the E Square business?

  • Gelu Voicu - President, CEO

  • Correct.

  • Steve Baughman - Analyst

  • That's all for me.

  • Thanks very much and congratulations on the very nice revenue quarter.

  • Operator

  • Srida Joisa, J.

  • & W.

  • Seligman.

  • Srida Joisa - Analyst

  • I had some questions on operating expenses.

  • They grew a little bit here in the April quarter.

  • Should we be expecting them to come back down in the July quarter and into next fiscal year at the same level, or should we grow them from this level?

  • Gelu Voicu - President, CEO

  • Some of them are tied into revenue growth like if we keep growing the revenue, definitely the sales expenses will grow.

  • Some of them are tied into Sarbanes-Oxley, which we believe and we push hard to lower, even though with limited success so far.

  • Steve doesn't agree with me, but -- so that's where we are.

  • Is that answering your --?

  • Srida Joisa - Analyst

  • Is this 6.1 level the right base we should be looking at, or does it drop a little bit and then grow from there in July?

  • Steve Miller - Corporate Controller

  • No, I think there are a lot of things that we have been doing in analyzing our expenses, so there's a lot of buttons that we can push, and a lot of variables that go into a company this size.

  • We, as a management team, will focus on those.

  • So yes, we want to keep them at a minimum where we are at.

  • Clearly, we would like to reduce those.

  • Gelu pushes me every day to get anything that's associated for me or my group down.

  • So I think we're perfectly focused on maintaining or decreasing the non-big-hitters or the non-value-adds like sales.

  • Srida Joisa - Analyst

  • Were there any one-time type of OpEx events in the April quarter or any seasonal type of OpEx?

  • Steve Miller - Corporate Controller

  • Not really.

  • Srida Joisa - Analyst

  • The share count?

  • What share count should we be using when you guys get to profitability?

  • Steve Miller - Corporate Controller

  • Well, it will go back to -- I think we were about 1 million diluted.

  • But clearly, in a loss situation -- so we would add 1 million.

  • Srida Joisa - Analyst

  • Add 1 million?

  • Steve Miller - Corporate Controller

  • Yes.

  • Srida Joisa - Analyst

  • Now, even with your buyback, last quarter I think you were 17.2.

  • If you add 1 million, that gets to 17.4, and you were buying back stock.

  • Was there a lot of option exercising in the quarter?

  • Steve Miller - Corporate Controller

  • Yes.

  • No, no.

  • Gelu Voicu - President, CEO

  • No, but if the share price goes up, there might be some exercising going on.

  • Srida Joisa - Analyst

  • I see, I see.

  • Then on a non-GAAP basis, what would your tax rate be?

  • Steve Miller - Corporate Controller

  • I don't know.

  • I'm new to the call, so I'd have to study that.

  • I do know that we are considering going to non-GAAP reporting in the future, so we will have that information available then.

  • Srida Joisa - Analyst

  • Thank you, guys.

  • Keep up the great work.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • Edwin Mok.

  • Edwin Mok - Analyst

  • One question on the E Square.

  • Your units actually increased quite [significantly in the last two quarters].

  • Can I ask, what is your mix of your 0.35 micron right now?

  • Gelu Voicu - President, CEO

  • Can you speak a little bit louder?

  • Edwin Mok - Analyst

  • The question is on the mix of 0.35 micron.

  • How much of the 140 million units that you shipped are 0.35 micron?

  • Gelu Voicu - President, CEO

  • Unit-wise, I think we shipped 70% of the total 154 million.

  • So if we take out the -- do you have the number, Steve?

  • Steve Miller - Corporate Controller

  • No, I don't.

  • Gelu Voicu - President, CEO

  • This is an easy question.

  • Let me check here.

  • So on the E Square business only, I think we are at the 75% unit-wise.

  • Edwin Mok - Analyst

  • That's great.

  • So part of the reason why there is a huge jump in terms of units in the third quarter and the fourth quarter was the fact that your customers qualified 0.35 micron and start taking parts, right?

  • Do you expect that, going forward, that effort is pretty much complete, given that you are already at 75% penetrated?

  • Gelu Voicu - President, CEO

  • Well, here, again, keep in mind that we start qualifying customers from the bottom up.

  • In other words, we qualify first the low densities, which are high volumes, and we still have to ramp up the higher densities, which will be lower volume but higher [speeds].

  • So this metric that checks only one number of units is a little bit misleading.

  • We are not over in ramping up the 0.35, because the high-density memories are still to come.

  • But there are less in units than the lower densities.

  • Edwin Mok - Analyst

  • Thanks for clarifying that.

  • One question on mixed-signal.

  • I noticed that your ASP increased quite a bit in this past quarter.

  • Is that more to do with the fact that you guys are starting to ship Quad-Mode product?

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • It's a large factor of the LED driver mix.

  • Quad-Mode is a subset of the LED driver business.

  • So we did see a resurgence in our LED driver business in Q4, and that is almost the entire reason for the ASP increase.

  • It's not Quad-Mode per se; it is the LED driver business as a whole.

  • Edwin Mok - Analyst

  • Great, thanks for clarifying that.

  • Keeping on the mixed-signal part, so besides the LED driver, you guys have a number of analog product that is actually quite interesting.

  • Just curious -- how is the design effort in those products?

  • If you can put any color on either design or actually revenue from those products, it would be very helpful.

  • Gelu Voicu - President, CEO

  • We have pretty much, I would say, three or four major product lines.

  • Q4 compared with Q3, almost all of them grew.

  • DPPs went up pretty well.

  • [YDD] drivers grew very nicely.

  • The one that didn't quite grow was the reset controllers, which were fairly flat quarter to quarter.

  • So that's what happened.

  • Edwin Mok - Analyst

  • In terms of design, any focus on particular product line that you think might be a good opportunity for next year?

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • Well, quite clearly, a lot of our focus in recent months has been on Quad-Mode.

  • We see that as our most highly-differentiated analog product, so that most definitely is a focus for us.

  • Now, having said that, as you rightly point out, we do have a surprisingly broad bag of products on the analog side, and we most definitely are pushing all of them.

  • Now, you mentioned design-in specifically.

  • Some of our analog products, supervisors being an example, are not really design-in products.

  • They are more of a purchase-and-sell, where they are in what we refer to as our phase one, where they are second sources of existing devices.

  • Edwin Mok - Analyst

  • Thanks for clarifying that.

  • Regarding the Quad-Mode, you guys announced during the quarter a partnership with Leadis Semi.

  • Can you maybe put a little color on that, and see how that has either helped your Quad-Mode design, or what do you guys expect to get out of that partnership?

  • Gelu Voicu - President, CEO

  • Well, the whole idea of that partnership was to help us penetrate accounts where we don't have yet access, and where they have already some relations.

  • In addition to that, they are working on some new product ideas where this concept of the Quad-Mode will offer them better efficiency, and they were willing to and looking to license this [effectual] approach to be embedded in their new designs.

  • But that's pretty much what's behind that agreement.

  • Edwin Mok - Analyst

  • It sounds like, in terms of penetrating new accounts, sounds like that part is still a work in progress, and potentially you guys could get more accounts because of this partnership.

  • Is that a correct way of looking at it?

  • Gelu Voicu - President, CEO

  • Actually, they are working pretty hard on that, and we hope that we'll see some orders as a result of this activity.

  • Operator

  • Srida Joisa, J.

  • & W.

  • Seligman.

  • Srida Joisa - Analyst

  • About how much of the EEPROM revs is 0.35 micron?

  • Gelu Voicu - President, CEO

  • How much of the revenue?

  • Srida Joisa - Analyst

  • Yes.

  • You said 75% of the units.

  • About how much of the revenues?

  • Gelu Voicu - President, CEO

  • I don't track revenue.

  • Of course, we can run the numbers, but right now I don't know the answer.

  • I know it in units --

  • Srida Joisa - Analyst

  • But from a high level, do you think it's half of the revenues or 60%?

  • Is it pretty close to the units?

  • Gelu Voicu - President, CEO

  • A think it's probably half, in that range, probably half.

  • Srida Joisa - Analyst

  • So you still have a lot of benefits left, in terms of 0.35?

  • Gelu Voicu - President, CEO

  • You can put it that way.

  • Srida Joisa - Analyst

  • That makes sense.

  • In terms of your analog revenues, about how much is the LEDs, and then the digital potentiometers is how much, high level?

  • Gelu Voicu - President, CEO

  • I think Scott is prepared better here.

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • It's changing on a quarterly basis.

  • But if we look at Q4, as Gelu pointed out, our LED driver business did pick up significantly.

  • At this point, LED drivers contributes approximately one-third of the business.

  • DPPs is about one-quarter of the business.

  • Supervisors would be another one-quarter of the business, and then we have a few other, smaller product lines that contribute the remainder.

  • Srida Joisa - Analyst

  • You said that supervisors was one-fourth?

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • Approximately.

  • Srida Joisa - Analyst

  • Quarter over quarter, about how much did LEDs grow?

  • Did they all grow quite a bit?

  • Gelu Voicu - President, CEO

  • Q4 versus Q3, I think almost doubled.

  • Scott Brown - VP Marketing for Analog/Mixed-Signal Products

  • More than doubled.

  • Gelu Voicu - President, CEO

  • More than doubled.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • At this time, there are no further questions.

  • Mr.

  • Voicu, do you have any closing remarks?

  • Gelu Voicu - President, CEO

  • Well, thank you for joining us today, and we look forward to talking to you again at the end of the next quarter.

  • Thank you very much.

  • Operator

  • This concludes today's conference call.

  • You may now disconnect.