安森美 (ON) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the ON Semiconductor second quarter earnings call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question-and-answer session.

(Operator Instructions).

Thank you.

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

Ken Rizvi to begin.

Thank you, Paula.

Good afternoon and thank you for joining ON Semiconductor Corporation's second quarter 2010 conference call.

I'm joined today by Keith Jackson, our President and CEO, and Donald Colvin, our CFO.

This call is being Webcast on the Investor Relations section of our website at ONSemi.com, and a replay will be available for 30 days following this conference call, along with our earnings release for the second quarter 2010.

The script for today's call is posted on our website and will be furnished via Form 8-K filing.

And our earnings release and this presentation include 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 separately on our website in the investor relations section.

In the upcoming quarter we will be presenting at the Pacific Crest Technology Forum on August 10 and the Citigroup Technology Conference on September 8.

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 believe, estimate, anticipate, intend, expect, plan, or similar expressions are intended to identify forward-looking statements.

We wish to caution such statements are subject to risks and uncertainties that could cause actual event 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, Form 10-Qs, and other filings with the SEC.

The Company assumes no obligation to update forward-looking statements to reflect actual results, exchange assumptions or other factors.

Now let's hear from Donald Colvin, who will provide an overview of the second quarter results.

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

ON Semiconductor Corporation today announced that total revenues in the second quarter of 2010 were $583.3 million, an increase of 6% from the first quarter of 2010.

During the second quarter of 2010, the Company reported GAAP net income of $78.7 million or $0.18 per fully diluted share.

The second quarter of 2010 GAAP net income included net charges of $24.7 million or $0.06 per fully diluted share from special items which are detailed in the schedules included in our earnings release.

Second quarter 2010 non-GAAP net income was $103.4 million or $0.24 per share on a fully diluted basis and includes stock-based compensation expense.

During the second quarter of 2010, our GAAP and non-GAAP operating expenses included approximately $4 million of acquisition-related expenses from our M&A activities that were not previously forecasted.

We exited the second quarter of 2010 with cash and cash equivalents of approximately $467.1 million, a decline of approximately $94 million from the previous quarter.

We also exited the quarter with the lowest net debt position in the Company's history at $286 million.

In the second quarter the Company prepaid $170 million of senior secured credit facilities and used cash of $22 million for the acquisition of Sound Design Technologies on June the 9.

At the end of the quarter, total day sales outstanding were flat with the first quarter of 2010 at around 50 days.

ON Semiconductor's internal inventory increased slightly from the first quarter on a days basis to approximately 86 days.

Included in our total internal inventory is $22 million of inventory related to our acquisitions of bridge inventory build related to our announced quarter of front end manufacturing lines.

Net of the bridge inventory and inventory from recent acquisitions, our inventory days would have been approximately 80 days in the second quarter.

Distribution inventories remain low at approximately eight weeks exiting the second quarter.

The cash and capital expenditures during the second quarter were around $53 million, bringing year-to-date Capital Expenditures to around $94 million.

We currently anticipate spending total Capital Expenditures for 2010 of approximately $200 million of which approximately 30 million will be for buildings.

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

Thanks, Don.

Now for an overview of our end markets.

During the second quarter of 2010, our end market splits were as follows.

The computing end market represented approximately 26% of second quarter 2010 sales.

The automotive end market represented approximately 20% of second quarter sales.

The industrial, military and aerospace end market represented approximately 19% of sales.

The consumer electronics end market represented approximately 17% of sales.

The communications end market, which includes wireless and networking represented approximately 15% of sales and medical represented approximately 3% of sales.

On a direct billing basis, no individual ON Semiconductor product OEM customer represented more than 5% of second quarter sales.

Our top five product OEM customers during the second quarter were Continental Automotive Systems, Delta, Pella, Motorola and Samsung.

On a geographic basis, our contribution from sales in Asia represented approximately 61% of revenue.

Our sales in the Americas represented approximately 23% of revenue, and Europe represented approximately 16% of revenue during the quarter.

Looking across the channels, direct sales to OEMs represented approximately 46% of second quarter 2010 revenue.

Sales through the distribution channel were approximately 45% of second quarter revenue, and the EMS channel represented approximately 9% of revenue.

During the second quarter, ON Semiconductor revenues, broken out by our product groups, were as follows.

The standard products group represented approximately 33% of sales, the automotive and power group represented approximately 24% of second quarter sales, the computing and consumer group represented approximately 23% of sales, and the digital and mixed signal product group represented approximately 20% of sales.

We will publish the quarterly revenue, gross margin, and operating break out of these segments in our Form 10-Q for this period.

We achieved several milestones during the second quarter of 2010, including recording our highest quarterly revenues, gross margin percent and net cash from operating activities in the Company's history.

We achieved historic revenue highs during the second quarter in three of our key end markets.

Automotive, computing and industrial.

Now, turning to our end market and product line results, in the automotive end market, we had another strong quarter of growth with revenues growing by approximately 8% sequentially versus the first quarter of 2010.

Revenues in this end market have exceeded prior highs driven by more electronic content per vehicle and a normalization of inventory levels throughout the supply chain.

During the quarter, we continue to see growth from our next generation solutions for emissions reduction, fuel economy improvement and enhanced lighting, safety, connectivity and infotainment power delivery systems.

One notable success has been the introduction of our first application specific IC for China's automotive industry.

This smart power ASIC was developed for a key automotive customer in the region, for use in a lighting application and generates more than 70 components into a single chip.

This achievement reinforces the overall success of our solution engineering centers, the newest of which we opened earlier this year in Shanghai to support automotive customers throughout the Asia Pacific region.

The industrial and military aerospace end market represented the strongest sequential growth of all of our end markets in the second quarter 2010.

growing by approximately 11% sequentially.

Similar to the automotive end market, the industrial and military aerospace end market exceeded prior highs.

During the quarter we continued to see growth in our custom analog, mixed signal, and ASIC products for this end market.

A convergence of connected building automation systems with energy efficient initiatives are driving demand for wired communications over IP, embedded control, and motor control, and sensors for proximity, ambient light, and imaging applications.

In the computing end market, we continue to see strong demand for our energy efficient power management solutions.

Audio amplifiers, protection devices, thermal management and standard products from key customers in both desktops and notebooks.

The computing end market experienced 5% sequential growth from the first quarter of 2010 due to a combination of worldwide PC production ramps by key customers, continued adoption of Windows 7, and corporate refresh efforts.

In addition the second quarter represented the strongest computing end market revenue in the Company's history at approximately 149 million.

During the quarter we continued to make inroads with design wins into next generation notebooks, tablet PCs and desktops with key manufactures driven by our buck and moose converters, SENSFET, and MOSFET products.

Exiting the second quarter, ON Semiconductor's well positioned to capitalize on a number of end market growth factors including increased vehicle demand in Asia, ongoing market acceptance of Android-based handheld products, the increased worldwide shipments of PCs and strong ramps in both SmartPhones and LED backlighting in TVs.

Within the SmartPhone market we have a full suite of products driving sales growth including our own protection devices, audio amplifiers, LED drivers, USB switches and medium scale IC integration to enable next generation handsets.

On the acquisition front, we successfully completed the acquisition of Sound Design Technologies Limited for approximately $22 million in cash.

This solidifies our position as a leading supplier of ultra low power DSP technology for hearing aids and consumer audio processing applications.

Now on July 15th, we announced the definitive purchase agreement to acquire SANYO Semiconductor for approximately JPY33 billion.

We anticipate this acquisition to close before the end of the year.

Annualized revenue of the combined entity would be approximately $3.5 billion.

SANYO Semiconductor is currently operating at approximately breakeven today, and based on current revenue run rates, our goal is to deliver in excess of $30 million in quarterly pre-tax income from SANYO Semiconductor approximately 18 months post-close.

Given SANYO Semiconductor's similar product profile, our proven abilities as an industry consolidator, and our established presence in Japan, we believe over time we can successfully migrate their financial metrics to be more in line with our recent financial performance.

We leave the acquisition of SANYO Semiconductor will move ON Semiconductor closer to our vision of becoming the premier global supplier of high performance energy efficient silicon solutions for green electronics.

The transaction represents a tremendous opportunity for both ON Semiconductor and SANYO Semiconductor, our employees, customers and our shareholders and we look forward to reporting on our progress over the coming quarters.

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

Donald?

Thank you, Keith.

Third quarter 2010 outlook.

Based upon current product booking levels, backlog levels and estimated terms levels we anticipate total revenues will be $585 million to $610 million in the third quarter of 2010.

Backlog levels at the beginning of the third quarter were up from backlog levels at the beginning of the second quarter of 2010, and represent over 90% of our anticipated third quarter revenues.

We expect average selling prices for the third quarter will be approximately flat compared to the second quarter of 2010.

We expect cash capital expenditures of around $50 million in the third quarter of 2010.

For the third quarter we expect GAAP gross margin of 42.2% to 42.7%.

Our GAAP gross margin in the third quarter will be negatively impacted from among other things, expensing of appraised inventory fair market value step up, associated with our acquisitions.

We expect non-GAAP gross margin of 42.5% to 43%.

For the third quarter of 2010, we also expect total GAAP operating expenses of $141 million $145 million.

Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairments and other charges which total approximately $10 million.

We also expect total non-GAAP operating expenses of $131 million $135 million which include approximately $4 million of deal related expense.

We anticipate GAAP net interest expense and other expenses will be around $18 million for the third quarter of 2010, which includes non-cash interest expense of approximately $8 million.

We anticipate our non-GAAP net interest expense and other expenses will be approximately $10 million.

GAAP taxes are expected to be approximately $4 million, and cash taxes are expected to be approximately $3 million.

We also expect total stock-based compensation expense of approximately $13 million to $14 million in the third quarter of 2010 of which $3 million to $4 million is expected to be in cost of goods sold and the remainder in operating expenses.

This expense is included in our non-GAAP financial measures.

Our current fully diluted share count is approximately 445 million shares based on the current stock price.

Further details on share count and EPS calculations are provided regularly in our quarterly and Annual Reports on Form 10-Q and Form 10K.

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

(Operator Instructions).

Your first question comes from Parag Agarwal of UBS.

Hi guys.

The first question is on the third quarter guidance.

One would have expected that given the extent, guidance it should have been a bit higher.

I'm just wondering if there are any capacity constraints that are limiting the upside, and also if you could give some color on the guidance by end markets?

I will give you some color on the markets and also talk a little bit about that guidance.

We do expect to manufacture and ship more than the high end of the range, the expectation we have however is that at this point the distributors may be starting to build some inventory, and since we're on a sell-through basis, we are discounting any growth in inventories in the distribution channel, so unlike some of the others giving guidance who are on a sell in basis, the sell-through really does make a difference as the distributors begin to accumulate inventory.

From a market perspective, we're expecting very strong performance from the automotive and industrial sectors and we're expecting strong performance from SmartPhones.

Overall, the rest of the markets should be closer to normal or slightly subnormal in their sequential patterns.

Okay, and as a follow-up, everybody in the industry is adding capacity and we think that a lot of capacity should come on line during the second half of the year, so just wanted to get your perspective on, do you think there's enough demand to be able to -- further capacity that is coming online right now?

Yes, you're asking for projection that I'm not sure I have enough data to give you a sound answer.

We have not seen abnormal or unusual capacity additions from the industry in general, so I haven't seen anything that alarms me overall, but as long as the demand is slightly higher than where we are today, over the next year, I certainly think it will be easily absorbed by the marketplace.

Thank you very much.

A brief reminder that callers are limited one question and one follow-up question.

Your next question comes James Schneider of Goldman Sachs.

Good afternoon, and thanks for taking my question.

Could you maybe just, following up on the last question give us an update on what your current revenue capacity is including Gresham, and your external network and what you might have been able to ship if you had no capacity constraints?

Both of those are conjectures.

Again a lot of the backlog is distribution, and I am certain that if we shipped everything that was on backlog, it would turn into inventory, so on the sell-through basis, I have no way of really judging that.

We do think that some number of 5% to 10% might be rational for supply less than demand during the quarter, of actually being used, but again, we don't have any way of firmly establishing that.

As far as the total capacity, you have to balance our line.

Gresham still has plenty of capacity left in it.

As we mentioned before, probably close to a theoretical $700 million worth of capacity is out there, and getting to it in mix with front end back end and all of the other supply constraints, of course means you're going to get a yield less than that.

Fair enough, and then maybe can you just describe what distribution inventory dollars did on an absolute basis in the quarter, and where that is relative to normal or prior peak level, please?

So I'll let Donald check on the exact numbers but approximately $20 million--

$10 million to $15 million.

Thank you, Donald, $10 million to $15 million of increase and the absolute dollars are still less than our peak of 2008.

Great.

Thanks very much.

Your next question comes from Ross Seymore of Deutsche Bank.

Just a question on the end market, Keith.

On the computing side of things when you described that as one of the other segments that would be at or slightly below normal, were you talking about versus normal seasonality or maybe the pointed question is what do you think is going on in computing because it seems to imply that would be well below normal seasonality?

Yes, I think we had a slightly better than normal seasonality in the first half of the year.

If we look at our numbers at least we certainly had that.

As I look at Q3 for normal seasonality, we normally would see something closer to double digit growth in computing and I think we're much closer to mid single digits in that marketplace this time around.

Great, and then as we think forward about the revenue capacity and how you're going to put it in place with the CapEx that you have, how should we think about, again you gave the theoretical, but what should we think for the actual shippable capacity maybe exiting this year and how you're going to address next year?

We're at a clip right now of adding somewhere around 8% per quarter of usable capacity and that will continue through the fourth quarter and into the first quarter.

But then that equipment is go being to be kind of tapped out and we'll have to see what next years expenditures will do.

SANYO will mess up the math anyway I would assume?

It will definitely change the mathematics there.

Thank you.

The next question comes from Craig Ellis of Caris & Company.

Thanks for taking the question.

Looks like ASPs are performing very well for a second consecutive quarter at flat sequentially.

Keith, is the flat ASP action broadly indicative of what you're seeing out there or are there really more gives and takes than that pricing?

Pricing is always complex.

There's always gives and takes.

It happened to work out kind of flattish in Q2.

Normally things are not stable, so they are going to head up slightly or down slightly as we go to Q3.

Our best guess right now is flattish, but I would give a slightly positive bias to that.

That's helpful, and Don as you think about inventories and where you want to be exiting the third quarter can you just help us understand how we should think about channel activity and then what you target for on hand?

Well, I think Keith mentioned, Craig, that our revenue is a little bit -- guidance is a bit negatively impacted by the fact that we have a sell-through Company so we are still simulating that as in the second quarter the distribution inventories will increase and the third quarter by something like the equivalent of 2% of revenue, something in that region, $12 million to $15 million region is what we are looking at today, so we would have had additional revenue, if we were a sell in rather than a sell-through Company and as far as internal inventories, I think similar percentage increases we saw in the second quarter is what we're tracking to currently.

Thanks, guys.

The next question comes from Craig Berger of FBR Capital Markets.

Hi guys.

Thanks for taking my questions.

You touched on lead times a little bit but can you just talk about where some of the different pieces of the business are and kind of how you expect those to fall over the next couple quarters and also maybe what customer reaction might be as they do fall?

We're not expecting significant changes in the third quarter, Craig.

They are main extended but just a brief reminder the majority of our sales are in the special service programs and not subject to lead times so we're talking about jet warehouses and vendor managed inventory, et cetera, so the bulk of what we sell and the bulk of our customers don't see those lead times.

Great, and then as a follow-up, can you just refresh us on when you expect that SANYO deal to close and how some of those first cost savings begin to roll in over time?

We noticed two weeks ago we were shooting for SANYO to close at the beginning of November so that's still on target and we haven't any update to the integration benefits that we expect to yield, but again I will just repeat what Keith said, is that within six quarters of closing, within 18 months, we expect that the business will be generating something like a $30 million per quarter contribution, and also draw your attention to somewhat also increased comments and the formal portion that our analysis of the business suggests we will be able eventually to run it at pretty close to the kind of margins we are currently enjoying and just on a quick personal note, I think I spent quite a lot of time when Keith was in Japan visiting customers, I would spend some time talking to investors and they got a lot of information from previous people who had looked at buying this asset, and I think it's fair to say there was a quasi-unanimous view this was a very attractive asset that was very complimentary to things that we already do and that we got it for a reasonable price.

What's the preference on cash versus stock with that transaction?

I've got a very clear indication from shareholders that they would prefer we do not issue stock at the $6.77 or whatever it was level that was worked into the agreement.

We have heard that message loud and clear and we are taking the appropriate actions to keep our shareholders happy.

Thank you so much.

Your next question comes from Christopher Danely of JPMorgan.

Hi guys.

This is [Shawn Dockery] calling in for Chris.

Nice job in the quarter.

Just a quick follow-up there on the lead time question that Craig asked earlier.

Can you reiterate where they are today and kind of where they rank with respect to your competitors?

Some of the guys have talked about lead times coming in recently and how much longer do you think it will take to get them back to normal?

Yes, again, I'll just point out that we don't have a standardized lead time reporting system amongst semiconductor companies so I'm not sure how valuable specific numbers are.

We still remain in the teens.

It's longer than we normally would expect, which is kind of the 8 to 12 range.

I don't expect them to come in during the third quarter, possibly in the fourth quarter start seeing them come in and again this impacts approximately 30% of our customer base.

Great.

Thanks for the color.

The next question comes from Ramesh Misra of Brigantine Advisors.

Hi, good afternoon, guys.

Thanks for taking my question.

In regards to your gross margin guidance for Q3, I would have thought it actually trended down a little bit especially since you've hit your peak numbers and perhaps are a little bit of the mix shift, but you're also pointing to greater strength in the industrial and automotive segment.

Is that the key driver for gross margins continuing to improve, and how long do you anticipate this unseasonal strength in auto and industrial to continue?

So the gross margin sequential numbers there, the factory utilization should be approximately the same.

It didn't change dramatically from Q1 to Q2 and it won't change dramatically from Q2 to Q3, so it's really not a covering fixed assets play here.

There is mix involved, and certainly we've seen the stronger mix from the markets you mentioned, which should help on the aggregate ASP side but we also have some increases in our salary base.

We do our annual global salary increases in July, so basically you're getting positive ASP shifts from a market perspective offset by some increased salaries and the net of that is the improvements that we forecasted.

Okay and then just briefly can you talk about what costs are doing right now?

We still see metal costs under pressure.

Gold particularly continues to be quite high.

There's a bit of a fluctuation in the copper and nickel front but nonetheless they continue to be pretty strong pressures on raw material costs.

Okay, thanks very much and congratulations.

Your next question comes from Terence Whalen of Citigroup.

Great.

Thank you for taking my question.

This one relates to distribution.

You made the comment that distribution would take on inventory again in the September quarter.

This question though relates to sell-through.

Is your expectation that distribution sell-throughs grow or decline in the September quarter?

Thanks.

I expect it to grow in the September quarter but not as fast as the ability to supply them products, so in essence, we would expect growth that is near or slightly below our total guidance and growth in inventory beyond that.

Okay, understood.

And then the second question relates to SANYO.

I think you're being purposely vague when you say that you think that the SANYO margins can come more in line with recent performance.

When you say more in line, are you talking within a point or two on the operating margin line or more three or four?

Thanks.

Well, when we stated on the call is that if you look at our EBITDA margin, we were in the mid 20s and we believe this business can eventually get to within four or five points of that over some period of time, that's certainly more years than months but that's the kind of rough approximation we have.

There's obviously a higher cost of servicing Japanese customers with a big infrastructure in Japan which we will be retaining so that's why there's a bit of a haircut.

Appreciate the color.

Thanks.

Your next question comes from John Vinh of Collin Stewart.

Hi.

Thanks for taking my questions.

You mentioned that your Q3 guidance had been slightly impacted by distribution inventory build.

If the channel stops building inventory in Q4, is it possible your Q4 revenues could be slightly up as a result of that?

If demand remains robust and it is fairly robust, albeit some of the market is growing a little less than seasonal, but still a fairly robust market and there's no question that the distributors are not shipping all that their customers are asking for right now, having the additional material could help the distribution portion of the sales in the fourth quarter.

Great, and then my follow-up for Donald.

On gross margins Donald, can you remind us again on your fab schedule and I think the Phoenix fab is the next up for consolidation, and is that obviously when we would expect to see the next meaningful uptick in gross margins at this point?

We have previously stated that and I can confirm it that the Phoenix fab closure was delayed, and that would result in between a 1% and 1.5% of gross margin improvement.

We haven't finalized that.

We are in the process of looking at the demand for the second half and we'll make that determination but I think we will certainly make the decision within the next six months or so and that we should benefit from that some time next year.

Thanks.

(Operator Instructions).

Your next question comes from Patrick Wang of Wedbush Securities.

Great.

Thanks for the questions.

First question is just with the utilization starting to stabilize and I guess the Phoenix fab closure on hold, is the primary driver on gross margins mix or are there any other moving parts we should think about?

Mix is probably going to have the biggest impact because I mentioned earlier over the next two quarters and then when we close the Phoenix fab, as Donald mentioned you'll get another point and a half or so, which is pretty substantial but at least over the next couple quarters, mix is probably the largest element.

Okay, got you.

That's helpful and then I wanted to ask a little bit, I wanted to ask about the disty side of things again.

Is there any particular reason why you think the disty's are building inventory in the third quarter?

Other than the data that I get in the comments that I've had from them saying that they are starting to see more material flow and the pressure is easing are words that they use and those are both euphemisms for they've got more inventory.

Got you, so it seems like they are maybe starting to get back to more normalized inventory levels?

I don't know that I would have gone that far.

Our levels out there are still eight weeks which is not normal, so I do think even with some slight build it will be a while before they're "normal" again.

I see.

Got you.

Thanks so much.

Your next question comes from Kevin Cassidy of Stifel Nicolaus.

Thanks for taking my questions.

With the PC demand being slightly below seasonal, is it a mix of notebook versus desktops or maybe could you give a little more details on that?

I do expect the desktop sector to be weaker than the notebook sector on a sequential basis, but it's tough for us to read that completely because we have products that go cross platform but my best guess right now would be the desktops slightly weaker than the notebooks.

Okay, and maybe if that relates to the ASPs also but ASPs being flat, can you break that down some more too?

Is that with a higher exposure to proprietary products is that part of the reason or I guess if you could give a little more detail on the ASPs remaining flat?

No, the ASPs is a broad based comment, so the more commodity products and certainly drive more impact than the proprietary.

Our proprietary products we tend to lock in longer term deals with our customers on and so that's pretty stable pricing to start with.

It's really the commodities that move more in any given period than the proprietary devices.

Okay, thank you.

The next question comes from Tristan Gerra of Robert W.

Baird.

Hi.

This is Scott Herlin calling in for Tristan.

Thanks for taking our questions.

I believe you mentioned earlier that Gresham was able to support $700 million of revenue but I think before you guys have been talking about it at maybe $450 million a couple of years ago, can you walk us through how that's changed?

What's kind of caused that and then I've got a follow-up.

The comment was actually not Gresham would do $700 million but that Gresham would enable us to build $700 million total.

So there's really nothing changed from the Gresham perspective.

We still have some capacity left in there to get to that $450 million to $500 million but the total is what's going up, not Gresham itself.

So that's still around $450 million?

Yes.

Okay, and then you've been talking about where lead times are and how that's not as relevant because of the vendor managed inventory.

Can you talk about your on time delivery rate and has that changed at all for those vendor managed inventory programs and kind of also what those bookings look like into Q4, do you have any visibility right now into what that looks like as well?

We have good visibility into Q4.

Most of our OEMs and distributors have placed orders through the end of the year, and that's pretty normal for when supplies are tight, but again, I'll remind you that backlog is pretty much all cancelable at any moment, so again I wouldn't read anything into that one way or the other but the answer is yes we have lots of visibility into Q4 and it continues strong.

And any comment on the on time delivery rate because it's 70% of revenues?

Yes, on time delivery rate has suffered a bit in some of those programs but it's not dramatic.

And that hasn't increased the on time delivery rate hasn't increased over the last couple of weeks or anything?

No.

I mean it's not changing dramatically in either direction over the last two months.

Okay, thank you very much.

The next question comes from Steve Smigie of Raymond James.

Hi guys this is [Andrew] calling in for Steve.

Thanks for the questions.

Can you talk a little bit about some of the segments within consumer there?

Have you seen any inventory building within TVs at all and has gaming rebounded here ahead of the holiday back-to-school season?

Gaming is rebounding.

We're seeing good builds for the gaming side.

We did see a slowdown in television orders after we exited the World Cup.

There's some signs now that in Q4 it may be coming back again but certainly the last month or so, there's been some weakness there.

Based on perceived in TV inventories.

Okay, and can you talk to the impact of the Euro to your business in the quarter?

I think that the Euro was very volatile.

One minute it was down and now it's back up again.

It's basically back to where it started.

I think the only thing we have is the rapid deterioration of the Euro because of some realized foreign exchange losses but we have a natural hedge because we have reasonable amount of revenue in Euros and a reasonable amount of expense, so I'd say that the main impact was probably we lost a bit of revenue and something in the four or $5 million range of revenue because of the weakness but it looks like it's now back to a stronger position than it was at the bottom so it's not a big movement for us.

Okay, thank you very much.

At this time, there are no further questions.

This concludes today's conference.

Thank you for your participation.

You may now disconnect.