Power Integrations Inc (POWI) 2002 Q4 法說會逐字稿

Good day everyone and welcome to this Power Integrations Q4 Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the CFO, Mr. John Cobb. Please go ahead sir.

Good afternoon. Thank you for joining us to discuss Power Integrations' Q4 and year-end results. I am John Cobb, CFO of Power Integrations and with me today is Balu Balakrishnan, President and CEO.

Before we begin with an overview of the quarter and year, I would like to remind you that our discussion today will include forward-looking statements reflecting management's current forecast of certain aspects of the company's future business. Forward-looking statements are denoted by such phrases and words as will, believe, should, expect, if, outlook, anticipate and similar expressions that look toward future events or performance.

Forward-looking statements are based on current information that we have assessed, but which by its nature, is dynamic and subject to rapid and even abrupt changes. We may also make forward-looking statements in response to your questions. Our forward-looking statements are subject to risk and uncertainties, which may cause actual results to differ materially from those projected or implied in our statements. Risks and uncertainties affecting our business, which could cause actual results to differ materially, are discussed in our most recent report on Forms 10-K and 10-Q filed with the SEC.

I will now turn the call over to Balu, who will take you through an overview of the business. Balu?

Thank you, John. Good afternoon. I would like to begin by saying that we are very pleased with the results of Q4 and from the year 2002. In an otherwise flat year for our end-market, we executed all of our key objectives and grew revenues by 15%. We also significantly strengthened our balance sheet, increasing cash by $32.5m and through significant manufacturing cost reduction, we are able to forecast 48% to 50% growth margins throughout 2003, beginning in Q1.

Another major achievement during 2002 was the introduction of two new products - Link-Switch and DPA-Switch. Combined with our existing products, these new products underscore our strategy to diversify the end-market by enabling us to expand our addressable power range scope 0-250W in the AC to DC market and 0-100W in the DC to DC market. Our addressable market is now $1.6b.

2002 was also the year in which we really began to see evidence that our market penetration and marketing strategy is working. While most of our end-market was weak throughout the year, our ability to penetrate existing markets and gain share, enabled us to achieve solid growth. Such strategy also allows us to forecast growth, even if our end-market remains flat.

We were also very successful in diversifying our customer base during the year. In our communications segment for example, we increased our cell phone charger revenue by 49%, while growing our customer base to over 90 worldwide. We think the majority of the growth we achieved during the year was driven by the addition of new customers, including several Chinese companies with cell phone chargers for their fast growing local markets. Revenue from new cell phone customers more than tripled over the last three quarters.

Turning now to Q4 results. We are pleased to have achieved the higher-end of our guidance, while also significantly improving our manufacturing cost structure. Specifically, we continue to make progress in improving yields and test times and reducing packaging and silicon costs. In addition, we are processing higher volume success, which reduces our per-unit cost. The experience is ahead of schedule and as a result, we have significantly improved our growth margin as we enter 2003.

Now I will talk more specifically about the performance in each of the market segments during Q4. The communications segment continues to grow, driven largely by strength in cell phone charger applications. Revenue from the computer segment was sequentially up for Q4. We saw strength in PC and server standbys and LCD monitors. These turns were driven largely by the success of TinySwitch-II and the growing demand for energy efficiency, which I will cover later in the call.

Revenue from our consumer segment was slightly down sequentially, due to the general weakness in consumer electronics. We did however see strength in [inaudible] and small appliances. [inaudible] and other segments were down in Q4. We completed 2002 with a revenue mix - communications 43%, consumer 23%, computer 21%, industrial 6% and other 7%. Our updated forecast for revenue mix by market for the full year 2003 is communications 41%, consumer 26%, computer 20%, industrial 6% and other 7%.

I will now discuss the design activity on TOPSwitch-GX and TinySwitch-II, and then I will move on to new products. Design wing activity for both TOPSwitch-GX and TinySwitch-II continued to gain momentum during Q4. As expected, TOPSwitch-GX and TinySwitch-II accounted for most of our revenue growth in 2002, and we expect the same for 2003. We also anticipate the stage of design wings on these products to continue over the next several quarters, contributing significantly to revenue growth in 2004.

TOPSwitch-GX which expands to a power range to over 250W, continued to achieve strong [design] in the quarter. We had significant designd in LCD monitors, DVDs, home appliances, consumer audio, chargers and medical equipment.

TinySwitch-II, which targets applications in the 2-20W range, achieved design in all four of those major market segments. A significant part of the design activity was in cell phone charger applications. Additional designs were achieved in PC standbys, PDA, DVD, home appliances and industrial applications.

Turning to our new products - DPA-Switch and Link-Switch. Just to remind everyone, we introduced DPA-Switch in June 2002. DPA stands for Distributed Power Architecture and it dramatically reduces the spark count and board space in 24W and 48W applications over to the 0-100W range. As we explained last quarter, we have sampled most [inaudible] and received positive feedback on this product. That fact, consistent with our historical design cycle time, we do not expect to generate revenue from the DPA-Switch until the second half of 2003.

Link-Switch, which was formally announced in September 2002, is intended to replace mini transformer base chargers and adapters in the 0-3W range. We have sampled most of the high-volume customers and are now working closely with many of these customers to get the product designed in. We are also working directly with OEMs to make them aware of the system of the benefit of Link-Switch or with linear transformers such as size, weight, energy efficiency and a single design for worldwide use. As we expected, this is creating significant OEM interest in Link-Switch.

Initial indications on this product are also positive and in fact, Link-Switch was recently named "product of the year" by Electronics Products Magazine. As with the DPA-Switch, we feel confident that Link-Switch will begin generating revenue in the second half of 2003.

In 2002, as a percentage of revenue, each product family accounted for the following. TOPSwitch I and II at 33%, TOPSwitch-FX and GX at 22%, TinySwitch I and II at 44% and other at 1%. In 2003, we expect our product families as a percentage of revenue to be - TOPSwitch I and II at 24%, TOPSwitch-FX and GX at 22%, TinySwitch I and II at 51% and Link-Switch and DPA-Switch at 3%.

On the energy efficiency front, [President Bush's one initiative] is continuing to drive TinySwitch-II in [inaudible]. In addition to the two major PC OEMs in the US, two clone manufacturers in Taiwan have now designs in TinySwitch II to meet the 1W standard requirements.

Energy efficiency is also becoming a primary driver into placing linear transformers in many consumer applications such as MP3 players and cordless phones. For example, Link-Switch is being compared by several cordless phone and answering machine applications, as a result of standard converter requirements that will become more stringent, effective in January 2004. The linear transformer base solutions that are currently being used are unable to meet these new standard converter requirements in these applications.

The trend towards energy efficiency appears to be gaining momentum worldwide as many industrialized nations including China, are beginning to establish energy efficiency standards to convert precious resources. To help our customers keep track of the latest global energy efficiency requirements, we have established a Green Room on our web site. The Green Room not only provides our customers with quick access to current and proposed energy efficiency standards by name, geography and product category, but also offers them our eco-smart solutions to meet these standards. We believe that energy efficiency will continue to be a key factor driving our growth going forward.

Now, on to guidance. Based upon information we have available to date, for the year 2003 we estimate revenue will grow 15% to 25% over 2002, with the same 0% to 10% growth in our end-market. In-line with normal seasonal trends, we estimate revenue in Q1 to be flat to down 5% sequentially. To summarize, we are proud of our accomplishments we have made in 2002. Not only did we achieve the high-end of our revenue and EPS guidance for the year, we also strengthened our balance sheet and significantly improved our manufacturing cost structure. The conversion of existing markets, we have been able to gain market share and grow our revenues. Going forward, our new products will allow us to penetrate additional markets. We continue to lead the industry through innovation by adding a total of 17 US and seven foreign patents, bringing the total portfolio to 56 US and 58 foreign patents.

In conclusion, our increased diversification market penetration has allowed us to grow consistently in a year in which our end-markets have had essentially no growth. We remain confident in our fundamentals and our ability to grow our business, even in the really challenging market conditions.

I will now turn the call over to John to review the financials. John?

Thank you, Balu. As Balu stated, we had an outstanding quarter and year, especially considering the weak market environment. We not only achieved the annual revenue and earnings guidance we provided last January, but we also significantly strengthened our balance sheet and improved our cost structure. We are very well positioned as we start the new year.

Net revenues for Q4 were $29.2m, an increase of 23% from the $23.6m recorded in the same period last year, and an increase of 4% from the $28.2m reported for Q3. For the year, net revenues were $108.2m, an increase of 15% from the $94.1m reported in 2001. Our revenue growth in Q4 and 2002 was a result of the continuing ramp of TinySwitch-II and TOPSwitch-GX.

In Q4 our gross margin was 47.7% of net revenues. The gross margin had a $700,000 benefit from an adjustment to reserve. Excluding this amount, our gross margin was 45.1%. This compares to 43% in Q4 of 2001 and 42% in the previous quarter. As we mentioned last quarter, we have achieved significant reductions in manufacturing costs. In Q4 we realized some of the benefits from these lower costs. In Q1, we expect the gross margin to further improve to a range of 48% to 50%, as our cost reductions are fully realized. We expect our gross margins to remain within this range during 2003.

Income from operations in Q4 was $4.7m and were 16% of net revenues, compared to $1.5m or 6.2% in the same period last year and $2.9m or 10.4% last quarter. For the year, income from operations was $12m or 11.1% of net revenue, compared with $7.9m or 8.4% in 2001. Net income after tax for Q4 was $3.6m or 12.2% of net revenue, compared with $1.3m or 5.3% in the same period last year and $2.3m or 8.2% last quarter. Net income for the year was $9.6m or 8.9% of net revenue, compared with $6.7m or 7.1% in 2001.

EPS for Q4 of 2002 on a diluted basis were $0.12 per share on approximately $29.5m shares outstanding. This compares with $0.04 per share in Q4 of 2001 and $0.08 per share last quarter. EPS for the year were $0.32, compared with $0.23 in 2001.

Looking at operating expenses. R&D spending in Q4 was $3.9m or 13.3% of net revenue, compared to $3.6m or 15.4% in the same period last year and $3.6m or 12.6% last quarter. For the year, R&D spending was $14.7m, compared to $14.5m in 2001.

Sales and marketing expenditures which include applications engineering were $3.7m in Q4 or 12.8% of net revenue, compared to $3.3m or 14.1% in the same period last year and $3.8m or 13.3% in the prior quarter. For the year, sales and marketing expenses were $14.5m, which is unchanged from 2001.

G&A spending in Q4 was $1.6m or 5.3% of net revenue. This compares with $1.7m or 7.2% in the same period last year and $1.6m or 5.7% of net revenue in the prior quarter. For the year, G&A spending was $6.2m, compared to $6m in 2001. Overall, our operating expenses increased only 1.5% year-over-year as we constrained our discretionary spending. As a result, operating expenses as a percentage of revenue, declined from 37.1% in 2001 to 32.8% in 2002. In 2003, we expect our operating expenses to increase 10% to 15% and we plan to add sales and application engineering resources to support our revenue growth objectives. We will also invest in strategic activities to support our long-term capacity requirements and cost objectives such as qualifying an additional foundry and establishing off-shore test capability.

Moving to the balance sheet. Cash at the end of Q4 was $109.4m, an increase of $5.8m from last quarter. Cash increased $32.5m from a year ago. Net AR were $8.5m at the end of Q4, down from $8.8m in Q3. DSO on gross receivables at the end of the quarter was 30 days, compared to 34 days in the preceding quarter. The reduction of DSO is the result of a higher than usual percentage of revenue being generated early in the quarter. Over time, we expect our DSO to trend higher.

Net inventory at the end of the quarter was $15m, a decrease from the $23.6m last year and an increase from $13.2m last quarter. The inventory turns in Q4 decreased to 4.3% from 4.9% last quarter. In Q1, we expect our inventory turns to decrease slightly as we build inventory to reach our target range of 3% to 4% over the next few quarters.

Our financial outlook for 2003 and Q1 is as follows. In 2003 we expect our revenues to grow 15% to 25% over 2002, which assumes 0% to 10% growth in our end-markets. Our revenue growth will result primarily from increasing shipments of TinySwitch-II and TOPSwitch-GX. Link-Switch and DPA-Switch will begin to contribute revenue in the second half of the year. We expect to achieve EPS in 2003 in the range of $0.50 to $0.65.

In Q1 we expect our revenues to in a range of relatively flat to down 5% sequentially, due to normal seasonal trends. The gross margins should be in a range of 48% to 50%. We expect our operating expenses to increase 4% to 5% sequentially. As a result of the above, EPS in Q1 are expected to be in a range of $0.10 to $0.12.

That concludes our prepared remarks. Before we ask for questions, we would like to remind you that we plan to present with the Bank of America Technology Conference in San Francisco on February 12, 2003. Operator, can you please open the line for questions.

Thank you, sir. Today's Q&A session will be conducted electronically. If you would like to signal to ask a question, please press the key, followed by the digit 1 on your touch-tone telephone. Once again, that is 1 for a question.

We will take our first question from Tore Svanberg with US Bancorp Piper Jaffray. Please go ahead, sir.

Yes. Good afternoon. Good quarter and great job on the gross margin. Maybe on that topic, could you give us a little bit more color on what you have done to lower your manufacturing costs? Also if you look at the Q1 guidance - your gross margin guidance - does that also include any special benefits?

The answer to the second question is no. The answer to the first question is that we have reduced costs of silicon, costs of packaging, costs of testing the device and have improved the yield on these devices quite considerably. We did a significant portion of it in Q3 as we mentioned. Some of the growth grew in Q4 and all of it will flow through to Q1.

Does this also mean that you are changing your longer-term target, especially if you are able to lower your cost structure even further?

Well, it all depends upon the markets and the discreet component costs. At this point, the discreet components have been relatively stable as far as the controllers go and so we have been able to make significant advancement in terms of gross margins. As we go forward, we will continue to improve our cost structure, so that we can offset any decrease in prices. We would like to get it staying this way - let me put it that way.

Okay. Very well. Can you also give us an update on the competitive landscape and also maybe talk a little bit about how you see discreet pricing, where we are today?

As far as the competitive landscape - there is really no change to report. In terms of discreet pricing, the only change we have seen in Q4 is a reduction in [factory] components. The active components which form the majority of what we replace in terms of competitive solutions, have been stable for the last two or three quarters. The factory components have come down, but approximately the factory components cost a small portion of what we replaced.

Very well. Thank you very much.

Thank you, Tore.

Our next question comes from Jim Liang with Pacific Growth Equities. Mr. Liang, please go ahead sir.

Can you hear me?

Yes, Jim.

Thank you. Good quarter.

Thank you.

I just want to see if you can talk a little bit more on the design wing activities for the Link-Switch in particular. Could you give us a little bit more color on that?

Sure. The major activity is currently going on in the cell phone area, cordless phone and major appliances. That is where I am seeing a lot of design activity going on. In terms of the DPA-Switch - there is design activity going on in the DC to DC converters for telephone applications, which is the number one market for that. There is also design activity going on in server applications and internet appliances and phones, and industrial applications.

As far as you having the confidence that those products will start to ramp in the second half of 2003 - that confidence level on a relative basis - is that stronger today, versus three months ago or how do you give us a little bit more qualification on that front?

It is definitely stronger because we are seeing more activity as we go along. So it is very consistent with our historical data on our other products - it all seems to be moving on target in terms of design activity. The other indication we have is from the response of design seminars we conducted worldwide. In Q4 we did a two-day seminar in all of our geographic locations worldwide and to date we have about 1500 people - 1500 engineers who attended the seminar. That is a tremendous amount of time commitment and that clearly shows us that there is significant interest in the product. This seminar was on how to use the products to design a power supply.

Great. One follow-up question. Can you just talk about 10% customers please.

Our 10% customers were the same as last quarter and the last few quarters - with two distributors - Memec and Synnex, and then Samsung.

Can you say how much Samsung was as a percent of total revenues?

Samsung was 12% of revenues in Q4 and in Q3 they were 16.6% of our revenue. So they actually declined as a percent of revenue from Q3 to Q4.

Can you talk a little bit about where that decline came from?

Samsung have their products in a wide range of applications like cell phones of course and then appliances, monitors, air conditioners and so on. The decline was mainly in the cell phone area in Q4.

Was that due to their in-demand shift or was it more due to competitive market share gains by competitors?

It was due to their end demand. Our position with Samsung is the same as it was before.

Great. Lastly, do you--?

Just let me elaborate on that. In spite of a 25% decline from Samsung, we actually grew cell phone revenue by 10% because of the diversification of customers we have now in cell phones.

Great. Can you talk about early indications and how Samsung business - cell phone business - will trend in the March quarter, relative to the December quarter?

So far for three weeks of January, their booking trends are very similar to December for example. Obviously September/October are busy months for everybody. They all order at higher rates, but if you look at the general ordering rates, they are relatively consistent.

Great. So the Samsung cell phone business will be trending in-line with your top-line revenue guidance sequentially?

Correct.

Great. Thank you very much. Great quarter.

Thank you.

We will take our next question from Doug Lee with Banc of America. Please go ahead, Mr. Lee.

Good quarter. A couple of things - just a clarification on the gross margin - it sounds like there was an adjustment to benefit. What exactly was that benefit? This first question for is John.

First of all, just to re-confirm, it was about $700,000 and this was the reserve that had been established in prior periods for excess products which at the time, we thought we had excess products, but we have been able to successfully either sell those products or now have demand in place where we will sell the products in the future. So as a result, we reduced that reserve.

I see. There are no more reserves like that that we should expect down the line?

Not at this time, no.

Okay. Terrific. I understand the guidance at this point was roughly flat - 48% to 50% each quarter through the year. As Link-Switch and DPA ramp up in the second half, does that cause any risk or in fact potential benefit? How do we think about that?

A risk to the gross margin, do you mean?

Yes. Just querying new products - maybe the yields aren't as stable. I'm just trying to understand that and how we should think about the--

Well, the DPA-Switch will have no positive impact because the margins are higher on the DPA-Switch. On the Link-Switch, it could have some impact, but on the other hand, we are continuing to reduce our manufacturing cost and that should offset it because the Link-Switch revenue this year as a percentage, will not be that significant.

I've got it. Okay. Great. Lastly, Balu, if you could give us your best guess as to how you see cell phone charger inventories. I know it is a tough question, but I guess it is on everybody's mind I guess - as you talk to your customer base, do you sense that inventories are in pretty good check here?

Well, that's a hard one to answer because I think our own customers are trying to grapple with that. If you noticed, Motorola announced that there might be some inventory in the channels. So what we can tell is how the bookings are going. The bookings seem to be going in relatively regular fashion. So there in no clear indication that there is - as far as we can tell, but we can only tell as a total cell phone booking. It is harder to tell how much of it is going into, for example Motorola or to a Chinese customer.

Okay--

It is easier with Samsung, because Samsung buys directly from us.

Okay. Then related to bookings - are your turns, expectation for several turns, roughly equivalent to make your guidance or do you expect to pick up in the turns rate this quarter?

The turns rate will be in the low [70s] which is very similar to what we had in Q1 of last year. If you look at the bookings to date, it is very consistent with the projections we have made, compared to the same period last year.

Okay. Q4 was mid [60s]?

Low [60s].

Low [60s]. Okay. Understood. Great. Will look forward to seeing you at the conference. Thanks.

Okay. Thanks, Doug.

We will take our next question from Auguste Richard with First Albany. Please go ahead, sir.

Good quarter guys.

Thanks.

Can you talk about the distribution of margin improvement across the product lines - TOP-Switch versus Tiny versus GX? In other words, did you get a little bit more boost in gross margins in Tiny-Switch as opposed to TOP-Switch, which is an older product?

All of the products received benefits from the cost reduction. But TOP-Switch-GX and Tiny-Switch-II is where we had most of the benefits because that is where we got most of the yield improvements - test time efficiencies and volume improvement. So all of the products received benefits, but the newer products got the majority of the benefit or more than the others.

Okay. Is that a three year 400 basis point type of gross margin on those products that are [inaudible] magnitude?

I am not sure what you are--

Assuming that they were 40 - did they go up to 43, 44?

I think with what we have done with Tiny-Switch-II and TOPSwitch-GX - we have brought their margins up so that now they are at least equal to the corporate average, where in the past, they were 5% to 10% below, which is what one of our ramp in products back in the second quarter - it was a drag on our gross margin. But now, what we have done with all our products but specifically Tiny-Switch-II and GX - those are now equal to about the corporate average.

Got it. Can you talk about the split in margin improvement across lower silicon cost packaging, test times and yields - just as the contribution along those categories?

It varies a lot from product to product and also within the product family by the size of the dye in the product. What I would say is that the significant cost reductions were in packaging and testing, and there were cost reductions in other areas too like silicon and the yield.

Got it. Okay. Finally, if you could talk about the end-markets again, the cell phone market. If you look at 2002, how much of the growth in chargers came from new customers versus existing customers?

I would say approximately one third of the revenue came from the new customers. When I say new customers - excluding the top five cell phone manufacturers.

Okay.

So the top five count for two thirds and all the new customers count for about one third.

Okay. Are you seeing a mixed shift to the more demanding higher wattage products on the cell phone market? Is that something you are seeing? Is that also driving the increased revenue growth in that market?

This is a hard number to come by, but from what we can tell, I think the ratio of electronic chargers which are used on the high-end phone, has increased slightly last year. We think it has gone from probably 30% of the phones to maybe 40% of phones.

Got it. Okay. Great. Do you see that trend continuing or do you think you max out at 50% or so?

We are hoping that we don't have the [cad] anymore because of the Link-Switch, we will be able to address the other 60% and once we are able to do that, we will be less sensitive to any change in the mix.

Got it. Very good. Thanks a lot.

Thanks, Auguste.

Our next question comes from Shawn Slayton with Ferris Baker Watts.

Hi guys. Good afternoon. Great quarter. Great year.

Thanks.

Did I understand you correctly that you said your average ASP declined from Q3? Was that correct? I think it was $0.50 in Q3 --

$0.50 in Q3 and $0.50 in Q4.

Okay. I think we have discussed a lot about the value proposition of your products relative to discreet. What are you guys seeing from your competitors who are starting to introduce integrated solutions similar to yours? Can you talk about the competitive landscape there - I was thinking Fairchild or STMicros?

Sure, they have been offering products for many years now and as far as we can tell, there is really no change in the competitive environment as far as integrated solutions are concerned. Our customers always talk about ST, Fairchild and so on as competitive products, but when we look at the shift in costs, we always win and that is why we have the market share we have. That hasn't changed so far.

Okay. John, the guidance you were giving for an increase in CAPEX for 2003 - is that going to be distributed equally among the various segments? How is that going to distribute?

You're speaking of the 10% to 15%?

That is right.

Yes. That will be pretty much consistent across the three components.

Okay. Can you go over what your cash flow from operations was, John and your CAPEX for the quarter, for the year please?

The cash flow from operations for the quarter was about $6m. For the year it was about $20m.

Okay - and your CAPEX?

The CAPEX for the year was about $6m.

For the year?

Yes, that was for the year.

Right. Great. Okay. Everybody seems to want to talk about your cell phone charger business. Was the growth there? Is it predominantly your continuing penetration into the existing electronics market and now the next leg of this thing is with your new product introduction to be geographical marketed now, effectively increase the linear segment? Do I understand that correctly?

That is absolutely correct. So far, all of the increase is through market penetration of the electronic chargers and with the Link-Switch - we will be going after the remaining 60% or 30% of the cell phone chargers which are currently linear, are transformer based.

Okay. Can you talk about what your primary target market is for you DPA-Switch? Does it have applications on the desktop server or PC side of things as well, or is it primarily orientated towards the cell phone?

It's primarily Telecom networking, because they use the [inaudible] architecture with 48W [inaudible]. In the computer area, it is also used in servers. Servers now use [inaudible] architecture - but the [inaudible] architecture has not moved to the desktop yet. Some time in the future it probably will, but at the moment it is restricted to the servers. The other area is internet appliances such as phones and also digital PABX phones - they also require a 48V to lower voltage converter. The last one is the industrial control. All of the industrial control including building control, is down at 24V.

Now in the future - sometime in the future - [automotive] will also look to go to 42V, but we are not including [automotive] numbers - market numbers - because we do not know when that is going to happen.

Okay. Thanks. Congratulations.

Thanks, John.

Operator. We would like to remind everyone that it is 1 for a question or comment. Next, we will go to a follow-up question from Tore Svanberg. Please go ahead, sir.

Yes. First of all - maybe to add a little bit to Doug's question earlier. As DPA and Link-Switch start contributing to revenue, is it the right way to look at this where maybe the higher margin DPA offsets the learning curve from Link-Switch, or is that the wrong way to look at it?

Well, it depends upon the relative revenue. Yes, it should over time, offset the lower gross margin on the Link-Switch to start with. Eventually, Link-Switch will also get to the same kind of margin as we improve efficiencies.

Okay. Very well. Also looking at your 2003 guidance. It looks like you are expecting higher growth rates in both your consumer end-market, as well as in Tiny II. Could you give us a little bit more color there. Are there specific applications within consumer - do you think they are going to be more of a hot item in those three?

We didn't actually talk specifically about consumers, but what we are basing the production on is on the designs that are already in production and the designs that we believe will go into production and contribute to revenue in 2003. We think that if the markets are flat - our end-markets are flat - we can still achieve 15% growth. If the end-markets grow, that will help us further. If the end-markets grow 5%, it could be 20% and if it is 10%, it could be 25%.

So, you are not expecting any given applications in the consumer market to drive more revenue than the corporate average?

That is right.

Thank you.

You're welcome.

Once again, it is 1 for a question or comment. We have a follow-up question from Auguste Richard with First Albany. Please go ahead, sir.

Just taking a look at the product line and the mix. Is it a reasonable estimate that Tiny II - the Tiny family grew about 22% sequentially?

We are looking at the data -- yes, it is a little bit higher than that in terms of growth. Tiny II has been a significant contribution to growth.

Okay. Looking at the TOPSwitch family - that has been coming down at a pretty good rate here over the last couple of quarters. Do you feel that product line is going to stabilize in the shift in market share to Tiny II, is going to start to slow down?

TOPSwitch was our first product. It is in the ninth year now, so we don't have any historical data that would tell us how long it would last. My guess will be - it will continue to sell for a few more years, simply because it is an application which sometimes are not re-designed for a long time.

Okay. Could you repeat the mix for last year, across the various product lines for 2002?

TOPSwitch I and II 33%, TOPSwitch-FX and GX 22%, TinySwitch-I and II 44% and other 1%.

Great. Thanks.

It looks like we have a question from Todd Cooper from Stephens. Please go ahead.

Hello. Can you give us some order of magnitude as to how much revenue contribution from the two new products you expect in the second half of the year, as far in terms of percentage or a dollar amount?

Yes. The Link-Switch and DPA-Switch together, we expect to be about 3% of our revenue this year.

Okay. Is it split evenly between the two?

We don't know that. It will depend on which of the designs will go into production. For now, that is a good estimate split evenly.

Okay. Thanks very much. Good quarter.

Thanks, Todd.

There are no more questions in queue at this time, so I will turn the conference back over to our speakers for any additional closing remarks.

Thank you for joining us today and we look forward to seeing some of you at the upcoming conferences. Thank you.

This does conclude today's conference call. You may now disconnect. We do appreciate your participation.