Power Integrations Inc (POWI) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Power Integrations fourth-quarter 2010 financial results call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Mr. Joe Shiffler. Sir, you may begin.

Thank you. Good afternoon. Thanks for joining us to discuss Power Integrations fourth-quarter and full-year 2010 financial results. With me on the call today are Balu Balakrishnan, President and CEO of Power Integrations, and Sandeep Nayyar, our Chief Financial Officer. During today's call we will make reference to financial measures that are not calculated according to Generally Accepted Accounting Principles. Please refer to today's press release, which is available on our Investor website at investors.powerint.com for an explanation of our reasons for using such non-GAAP measures as well as tables reconciling these measures to our GAAP results. Also our discussion including the Q and A sessions will include forward looking statements reflecting managements current forecast of certain aspects of the Companies future business. Forward looking statement are denoted by words such as; will, would, believe, should, expect, outlook, estimate , plan, anticipate, suggest, project, forecast, and similar expressions that look to our future events or performances. Forward looking statements are based on current information that is by it's nature dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release and under the captioned item, Item 1A Risk Factors, in part two of our most recent Form 10-Q, filed with the SEC on November 3, 2010. This conference call is the property of Power Integrations, and any recording or rebroadcast of this conference call is expressly prohibited without the written consent of Power Integrations. With that, I'll turn the call over to

Thanks, Joe, and good afternoon. 2010 was a landmark year for Power Integrations, as we surpassed 1 billion units shipped, approached $300 million in annual revenues, secured more than 1,000 design wins and launched eight new product families, the most in our history. It was also the ninth straight year of revenue growth, as we again out-paced the analog [semiconductor] industry with top line growth of 39%. Since 2006, Power Integrations has grown at a compounded annual rate of 17%, compared with a growth rate of about 3% for the analog industry.

This wide margin of our performance shows that energy efficiency has become one of the most powerful secular trends in the electronics industry over the past 40 years. Efficiency standards continue to spread to more end products and more geographies around the world, as policymakers have clearly bought into the notion that the cheapest watches to produce are the ones you don't use in the first place. Meanwhile, OEMs have embraced energy efficiency as a way to make their products greener, and are now pushing for efficiency levels well beyond the requirements, with some OEMs even looking to achieve the ultimate goal of zero stand-by waste.

Energy efficiency helps us in a number of ways. First, it creates design churn in the power supply market, giving us more opportunities to take share. It also makes our products more attractive relative to competition because of the simplicity and the cost effectiveness of our EcoSmart technology. Lastly, as more designers have begun using our products for the energy efficiency benefits, they have come to appreciate the other benefits of integration such as ease of design, faster time to market, higher reliability and reduced manufacturing costs.

With our traditional low-power market still only about 20% penetrated, we have plenty of room for growth ahead of us, as efficiency standards continue to tighten over time and as the market continues to migrate away from the space solutions toward more sophisticated integrated designs. And with additional drivers, such as LED lighting and our new Hiper products contributing incremental growth, we are well positioned for 2011 and beyond. LED lighting revenues are already a significant driver, growing more than 100% in 2010 and contributing approximately $14 million in annual sales.

Design activity remains brisk, with more than 70 design wins in the fourth quarter alone. We also held a well-attended series of design seminars, training more than 2,500 customers to use our new LinkSwitch-PH and LinkSwitch-PL LED driver products for general lighting. We believe LinkSwitch-PH and PL are the only entity driver chips to incorporate power [tractor] collection and an integrated high-voltage [smart] set, while also eliminating the need for electrolytic capacitors and [opto] couplers, the components most likely to limit the life of an LED lamp.

We remain very bullish on the lighting opportunity, as LED technology comes down the cost curve and traditional incandescent bulbs are phased out over the next several years. California has already banned sales of new 100-watt incandescent bulbs, effective January 1 of this year, one year ahead of the nationwide ban scheduled to take effect in 2012. We also expect to see our first material revenues from the high-power market in 2011. After being pushed out due to the recent softness in the market, our first high-volume designs for the desktop PC market are going into production this quarter.

Along with a new design we won in the fourth quarter at another top tier PC power supply customer. We are also getting good traction with our new CAPZero chips, which eliminate standby losses from the so-called bleed resistors in high-power applications. Among others, CAPZero has now been designed at two high-volume TV manufacturers, both of which should begin to ramp during the March quarter. In addition to the eight new product families we rolled out in 2010, we also completed several strategic transactions to expand our footprint in the high-voltage power commercial market.

In October, we announced a strategic investment in SemiSouth Laboratories, whose high-voltage silicon carbide devices set the standard for high-efficiency [applications] at low cost. This investment is a natural extension to our efforts to expand into higher power applications, and should enable us to add solar, wind and electric vehicles to our addressable market in the years ahead. In December, we acquired Qspeed Semiconductor, an early-stage supplier of high-performance high-voltage diodes for approximately $7 million in cash.

Qspeed diodes are a natural complement to our power conversion chips, bringing many of the same benefits that we bring to power supply, including high efficiency, low noise and a reduction in cost and size of external magnetic components. We have already integrated Qspeed products into our sales channels, and are currently offering them to customers alongside our high-power products. Sandeep will cover the fourth-quarter results in detail, so I'll just add a few high-level comments before turning it over to him.

Fourth-quarter revenues hit the high end of our guidance at $73 million, a sequential decline of just 3%, which is close to average seasonality for the fourth quarter. With the exception of our popular LinkSwitch-II family, lead times have been back to normal levels for several months now. And after a sharp decline over the summer and early fall, we have seen a meaningful improvement in bookings over the past three months.

Fourth-quarter net bookings increased by more than 20% versus the third quarter, and January was our strongest month of net bookings since last May. As indicated in our press release, we expect first-quarter revenues to be between $71 million and $77 million. The middle of that range would be consistent with a typical first-quarter seasonality. While two quarters don't necessarily confirm a trend, this apparent return to seasonality and the recent upturn in bookings suggest that we have probably turned the corner on the recent downturn.

The other item I will highlight in our outlook is gross margin, where we are feeling the impact of the stronger yen versus the dollar, which increases the cost of [labors] from our Japanese foundries. The dollar has depreciated by more than 30% versus the yen over the past 4 year, and more than 10% since middle of 2010. As we indicated on last quarter's call, the impact of the most recent move will be reflected in our first quarter's gross margin, as higher-cost [labors] begin to flow through our inventory.

We expect our non-GAAP gross margin to be 48% to 49% in the first quarter, down from 49.8% in Q4 ,with a stronger yen being the primary driver of the decline. While there's no short-term solution, we have a number of efforts underway to mitigate this margin pressure and get back above 50% levels. First, is the ramp of our new lower-cost process technology, which is well underway with a small number of products expected to begin shipping in Q2. Next, is a conversion from gold to copper wire in our packaging, a transition that we have been working on for more than a year now.

A small number of products are now qualified on copper and should begin shipping in the second quarter, with additional products to be converted over the next several quarters. Finally, we expect the last of our five inch wafer fabs to be shut down later this year as we complete the transition to lower-cost six-inch facilities. We expect these programs to provide some benefit to our gross margin by the third quarter, and a more significant benefit in the fourth quarter, which should enable us to achieve our goal of getting back above the 50% level by the end of the year. Before I turn it over to Sandeep, I will just quickly mention one more milestone. The completion of our 2004 patent litigation against Fairchild Semiconductor.

Last month, a federal district court issued its final ruling in the case, doubling the damage award to approximately $12.9 million after earlier finding that Fairchild's infringement was willful. A prominent injunction covering more than 100 Fairchild products remains in place, and the district court case is now closed. But we still have additional cases pending against Fairchild, including possible appeal of the 2004 case. We are very pleased that the system ultimately recognized and rewarded the innovations that we have brought to the market. And with that, I'll turn the call over to Sandeep.

Thanks, Balu, and good afternoon. I will quickly review a few highlights of the 2010 full-year numbers, then drill down on the fourth-quarter results before touching on the first-quarter outlook. 2010 revenues were $299.8 million, up 39% year over year. Industrial revenues were the fastest grower, increasing more than 60%. Industrial was strong across the board but highlighted by LED lighting revenues, which more than doubled from prior year. Revenues from the consumer market grew nearly 50%, highlighted by strong growth in appliances. While communications revenue grew in the high 20%s driven by cell phones and networking equipment.

Computer revenues, which are comprised mainly of desktops and monitors, grew in the mid-teens. Our full-year gross margin was 51.1% on a non-GAAP basis, an increase of 60 basis points from the prior year. GAAP gross margin was 50.9%, up 80 basis points from 2009. Non-GAAP operating expenses were $82.6 million, an increase of just under 20% for the year, or about half the rate of revenue growth. That resulted in non-GAAP operating margin of 23.6%, up 510 basis points versus the prior year. On a GAAP basis, operating expenses were $92.6 million, giving us GAAP operating margin of exactly 20% for the year.

Our full-year tax rate was 18% non-GAAP and 20% GAAP, consistent with our expectations. Non-GAAP earnings were $2 per diluted share, up 69% from the prior year. On a GAAP basis, we earned $1.67 per diluted share, which is more than double our 2009 earnings of $0.82. We generated $60 million in cash flows from operations for the year, up 33% from 2009. Capital expenditures were $30.6 million, an unusually high number for us, reflecting significant capacity additions plus the installation of solar power at our headquarters facility. I expect CapEx to come down significantly in 2011, to something closer to $20 million.

We used a total of $14 million during the year for share repurchases, while dividend payments totaled $5.6 million. That leaves us with cash and investments of $215 million at year-end, up $19 million for the year. I will turn now to our fourth-quarter results which are very straightforward. So, I will just quickly run through some of the key metrics and then move on to the outlook. Fourth-quarter revenues were $73 million, up 10% on a year-over-year basis, and coming in at the high end of our range which was $67 million to $73 million.

On a sequential basis, revenues declined 3%. And when we drill down to the end-market level, we can clearly see the inventory correction beginning to subside in the consumer and computer markets, and migrating to the industrial market. Industrial revenues declined in the low-teens in Q4, with softness pretty much across the board. LED lighting was one of the few exceptions, showing a slight increase from the prior quarter.

Consumer and computer revenues declined mid-single digits, a much smaller decrease than the double-digit decline we saw in the prior quarter. As expected, the communications end market was relatively strong during the fourth quarter, growing in mid single-digits sequentially, driven mainly by the cell phone market. Two distributors, Avner and ATM, were our only 10% customers during the quarter comprising 19% and 12% of sales respectively. Overall, distributors accounted for 66% of revenues during the quarter, while direct sales comprised 34%.

Channel inventories decreased by $4 million during the quarter, as distributors adjusted to shorter lead times. Channel inventory stood at 6.7 weeks at quarter end, down from 7.4 weeks at the end of prior quarter. Non-GAAP gross margin was 49.8%, down 210 basis points sequentially. As we expected, the decrease was driven mainly by end-market mix, reflecting the relative strength of the communications end market versus the higher-margin industrial and consumer markets. GAAP gross margin for the fourth quarter was at the midpoint of our range, coming in at 49.5%.

Non-GAAP operating expenses were $22.1 million, up $1.1 million sequentially. The increase was driven mainly by sales and marketing, reflecting the four product launches we did in Q4, plus our annual sales conference and our very successful series of design seminars for LED lighting. Expenses associated with the Qspeed acquisition also contributed to the increase. GAAP operating expenses were $25.2 million, including $3 million in stock-based compensation. Our non-GAAP and GAAP tax rates for the quarter were 21% and 22% respectively, about two points higher than expected, due mainly to a one-time impact related to the Qspeed acquisition.

Coming down to the bottom line, non-GAAP net income was $0.39 per diluted share, while GAAP earnings was $0.30 per diluted share. Turning to the balance sheet, cash and investments decreased by $9 million during the quarter. The largest use of cash was the SemiSouth transaction, which entailed both an equity investment and the purchase of technology license. I would also point out that the license is classified as an operating cash flow item on the cash flow statement, which is the reason we show negative operating cash flow for the quarter. The other significant use of cash was growth in internal inventory, which rose $13 million during the quarter, to $62 million.

We expect inventories to remain at roughly the current level through the first quarter and then begin to come down in Q2. And eventually reaching steady-state levels sometime in the second half of the year. Turning to the first-quarter outlook, we expect revenues to be in the range of $71million to $77 million. We expect our non-GAAP gross margin to be about between 48% and 49%, down 130 basis points at the midpoint. With the decrease driven primarily by the impact of the yen. Beginning with our Q1 results, we will be excluding certain acquisition-related items from our non-GAAP gross margin calculation, specifically the amortization of developed technology and the write-off of acquired inventory.

These very small charges, combined with stock-based compensation, should cause GAAP and non-GAAP margins to differ by roughly 50 basis points. We expect non-GAAP operating expenses to be $22 million, plus or minus $0.5 million, which is similar to the fourth-quarter level of $22.1 million. Stock-based compensation plus amortization of intangibles should total approximately $3 million, bringing GAAP expenses to $25 million, plus or minus $0.5 million. We expect our non-GAAP tax rate for the first quarter to be around 18%, while our GAAP rate should be around 20%. And I think these levels should apply for the full year as well. With that, I will turn it back over to Joe.

Thanks Sandeep. We are ready to open up for questions, and I know there are some other conference calls coming up this afternoon, so in the interest of time I would like to ask each caller to stick to a limit of one question, and a follow up, if you have one. And then time permitting we will be happy to come back around for a second round questions, if you have more questions for us. Operator would you please give the Q&A instructions?

(Operator Instructions) Our first question comes from Vernon Essi of Needham & Company.

Nice job on the quarter and the year-end results. Wondering if you could discuss just quickly on Qspeed, two questions here. First off, interesting company, had some interesting technology. I sort of looked at it as being a threat possibly to silicon carbides. I'm wondering if you're sort of making a bet on both sides of the technology angle there for high voltage. And then also, what sort of revenue expectation should we be looking at that? And what kind of success do you have putting their products through your sales channel right now?

Thanks, Vernon. This is Balu. The Qspeed technology is a very unique silicon technology that gives you the highest performance and the lowest cost high-voltage silicon diode. It is the best silicon diode that's available in the market today. So, it is a nice complement to some of our high-power products because you need to use them in PFC stages and also in some cases in [upper-dial] stages. I might also add that the ASP of Qspeed products is higher than our current ASP, which is kind of nice.

We also plan to use the Qspeed diodes in the future along with the [High power] products, even integrated within the package. So, it makes sense for us to acquire this technology. As far as how it compares to silicon carbide, the Qspeed technology is really meant for 600 volts or, say 200 volts to 600 volts, whereas the silicon carbide technology really starts to be cost effective at about 1,200 volts. Now, you can build silicon carbide at 600 volts, but Qspeed's technology at 600 volts will be much more cost effective.

In fact, one of the markets is able to replace silicon carbide diodes in 600-volt applications at a much lower cost point. So, that's one of the attractiveness of using Qspeed, because its performance is very close to Silicon Carbide, but at a lower cost. So, this is completely complementary with the SemiSouth technology. We don't see any overlap between the two. We think it actually fits in between the two.

Okay. Well put. And then just any thoughts on how the revenue traction would look like? And are you seeing good success out of the box with the channel cross-fertilization there?

Well, we think that this is going to do really well, especially as part of Power Integrations. They had more challenges selling it as a very small company even though they had a very good product. Most customers were, by the way, the same customers as ours, were reluctant to buy from a small company. So, we are very optimistic. It's hard to tell what revenue would be in the first year. Our expectation is it will be in the low single-digit millions. And on a non-GAAP basis, we expect to be accretive at the end of the year.

Okay. That's helpful. Thanks a lot.

You're welcome.

Thank you. Our next question comes from Steve Smigie of Raymond James.

I'd like to add my congratulations as well on a nice quarter and guide. I was wondering if you could talk about the LED lighting business? It seems like it was fairly strong there. Can you tell us how that syncs up with what we hear out of the LED providers themselves? Like [Cree] had a pretty bad quarter. The Chinese, I think, have been rejiggering some inventory as they slow down some of their lighting programs, street lighting programs over there. So, how does that sync up in terms of timing with that stuff over there? And then if you could just add a little bit more detail on why there was the jump there in the inventory, that would be great. Thanks.

Okay. This is Balu again. Let me talk about the LED market and then Sandeep will fill you in on the inventory. I am not sure that what Cree sees and what we see will be, from a timing point of view, will be the same. My understanding is, Cree had some specific programs in China that were delayed. But you have to remember that are many, many LED manufacturers and many different applications. The street lighting is only one of many applications we go into.

So, I don't think we can find a correlation between the two. As Sandeep mentioned, our LED revenue in Q4 grew slightly, even though industrial revenue was down significantly. So, that shows that the LED is continuing to grow. And so, all indications are, if you look at our design wins and the design activity, LED is going to be a very strong growth for us in 2011. Sandeep?

Yes, part of the answer to your question on inventory. Inventory is a little higher than we would normally want to run our business, but this is not unusual. If you look back what happened in Q1 of 2009, we were in a similar situation within a quarter or two, having low turns of like 2.6 or seven, we're going down to like turns of five or six. And part of the other reason is, we have about $10 million of new products, as Balu had mentioned, with ramp happening a little later than we anticipated in the PC side of the Hiper product. And added to that, our products -- these are all good inventories because one product, which is applicable in a DVD player can also go into a refrigerator.

So, we have kind of always erred on having a little more inventory than the other. And the difference this time is that we also want to keep maintaining our foundry capacity. And if you see what happened last time, is we had really cut back and then we would not have enough inventory in 2009. So, we have actually this time erred a little bit on having the inventory on the higher side. But having said that, we are monitoring that and we are -- as I mentioned in my remarks, we expect this inventory to start coming down in Q2 and come back to what I call a normal run rate by the second half of this year.

Great. Thank you.

Thank you. Our next question comes from Tore Svanberg of Stifel Nicolaus.

Good quarter. Could you comment a little bit on your turns in Q4? And what are you expecting in turns for your midpoint here in Q1?

Well, I think the turns -- As you know, for us the bulk of our revenue is on a sell-through basis, so sometimes the turns are not as meaningful, because unless what you ship in gets sold through. But having said that, we expect somewhere in the mid-20s as our turns. And what we had in Q4 were somewhere around about 15% or so of turns.

Okay. And when you say mid-20s, that's based on where we are right now, or the beginning of the quarter?

Beginning of the quarter.

Okay, very well. And then you talked about channel inventories being at -- I think you said 6.7 weeks, which is down from 7.4 weeks in Q3. Are we sort of down to the level that you would expect? Or, is there still a little bit of a correction still to come there?

It is more than what we have seen historically, but when we talk to the distributors, our top two or three distributors, they feel that they need the inventory because they are concerned that if there is a significant growth coming, they want to be prepared for that. I guess they've been burned in 2009 by not having enough inventory.

So, I'm a little bit surprised that they want to carry the inventory, but that's what they want to do. But I think in the long term, we'll probably be more in the five to six week timeframe, simply because we have a lot more products now. [Worse] than the 4.5 weeks they were averaging before.

Great. As a follow-up, high power looks like it's going to start ramping, or at least beginning production in Q1. How much can we expect high power to be in 2011?

The best we can estimate, we think it's going to be in the high single-digit millions.

Great, thank you. Great job.

Thanks.

Thank you. Our next question comes from Sukhi Nagesh of Deutsche Bank.

Balu, your inventory going up 26% here. If I look back in time, and every time your inventory has gone up so much, I think the next few quarters, we've seen a gross margin drop by a few percentage points. This happened in 2003 and in 2001. In 2001 you could call it as a bubble. Should we see something different structurally here that will let your gross margin hold up to where it is right now, this time around?

If you look at it, we are projecting our gross margin to go down. And as we had indicated before, that this inventory, at the rate we are buying the yen has an impact, and it's about a six month delay. This we have said at the end of the third-quarter guidance. And that is being reflected in the guidance that we are giving for the first quarter, where we are saying our gross margin would be in the 48% to 49%. And the main impact is the impact of the yen at what we purchased at during this last six months.

I think that's a good question. If you slow down our production to bring the inventories down, whether it's going to have a gross margin impact. In the second quarter, we will see a little bit of a negative impact because of the slowdown. We are slowing down our production. However, it will be offset by some cost implements we have already put in place, which is moving some of the products to the new technology.

That will give us a positive impact, which will be offset by the reduction absorption in Q2. So, our expectation is our Q2 gross margin will be similar to Q1. And after that we should start seeing improvements in Q3. And by Q4, even if the yen stays where it is, we think that we'll be crossing over 50%.

Got it. Okay. That's helpful, Balu. And then you said lead times have returned to normal for all your products, but LinkSwitch. And LinkSwitch is about 40% of your business right now. When do you expect that to actually return to normal?

Actually, LinkSwitch-II is what I was talking about. It's not 40% of the business.

Okay.

It's 25% of the business. And we are almost caught up. By February, end of February, we'll be caught up with all the demand. And then in March we'll build some inventory. So, in Q2, we plan to bring the lead time on LinkSwitch-II to similar -- our standard lead time levels, which is four to six weeks.

Perfect. Then one last question for me. If you looked at this year by end markets, can you give us an estimate of what end markets or [ranking] or your end market growth for this time of year, please. Thanks a lot.

I don't have a good guess on how different end markets are going to perform. I'm afraid don't have an answer for that.

All right. Thank you.

You're welcome.

Thank you. Our next question comes from Arnab Chanda of Roth Capital.

Thank you very much. Balu, maybe, just a more high-level question. If you look at the Company's history since the IPO, your growth rate really kind of started to accelerate in 2007 before the recession. And then, obviously, last year. Can you talk a little bit about, is this because your core business was growing faster? Or, because of energy efficiency becoming more important? Or, is it because you just had a whole bunch of new products and new [ventures] like LED that added to the growth or whatever and the core business growth didn't change? If you could elaborate on that.

Well, it's really the energy efficiency becoming a major driver for our business. In 2007, the most important catalyst was the California Energy Commission's mandatory energy efficiency requirements for external power supplies. And, of course, that spread across the country and then into Europe. And now we have many other mandatory standards which have come into place.

And so, that's driving not only our core business, but also LED lighting. Because LED lightning is much more efficient than incandescent lighting and also more efficient than copper fluorescent. So, it's really the energy efficiency that has changed our growth rate. Our compound annual growth rate is roughly twice since 2007, which is 17% versus what it was for the previous six or seven years, which was around 8%.

Balu, if I could just ask you, what mechanically what that means. Does that mean that because of these standards, there is a faster replacement cycle for power supplies? Or, is there a faster conversion to integrated chips versus discrete?

As I said in my script, basically there's two benefits to us. One, is that there is a lot more design churn going on in power supplies. Historically, power supplies were not redesigned very often, but thanks to energy efficiency they have no choice. They have to redesign it to meet the latest energy efficiency requirements. And every time somebody redesigns a power supply, we have a chance to gain share from a discrete solution or a competitive solution.

The second one, is we have been pioneers in energy efficiency by using our EcoSmart technology. Whenever there is a tight energy efficiency requirement, our products look more attractive to the customer because we can meet energy efficiency with far fewer components, with simpler designs and more cost effective designs. So, it affects us in both ways.

Okay, great. And if I can ask my last question to Sandeep. Could you talk a little bit about if you look at what you're doing with wafer cost reduction and generally cost reductions? How does that compare with -- at this point obviously, you have some reduction [cost] versus the [history of reduction]. Or, maybe they're both kind of similar, or maybe one's a little more than the other. Can you offset--Is there a certain percentage of yen rate decline that you're targeting in general? Obviously, this has never happened before. I'm just curious, do the two negative forces offset the positive force? Or, is one way or the other? If you could talk about that a little bit that, that would be great.

If you look at it historically, one of the things we have been able to do is offset the normal price decline with the cost reduction. But if you look at how much yen has come down historically over the four years, which is probably like 30% or so, that is something which is hard to offset. If you look at about three or four years ago, the gross margins were as high as 54%. Now, they're down, and if you take out that 4% that I'm talking about roughly coming out of the yen impact.

So, as the yen impact is hard to offset even though we have the sharing arrangement that we have with the foundries. But we have, I think, doing very well in offsetting the normal price reduction. But having said that, I think we have got a lot of other programs, as Balu has indicated, in terms of the copper transition as well as a the [DM] transition. With that, we are very hopeful that we will be able to get back to our model and be able to get, by the end of this year, to slightly above 50%.

Okay. Thanks, Balu. Thanks Sandeep.

Thanks, Arnab.

Thank you. Our next question comes from Andrew Wang of Sterne, Agee.

Thanks, guys. Congratulations on the quarter.

Thanks, Andrew.

Just a couple quick detail questions. Can you give us the average ASP for the quarter?

The average ASP for the quarter was about $0.29.

Okay. And was any of the sequential inventory builds due to the Qspeed acquisition? Or, was it all organic?

No. It included, as I had indicated, about $10 million of the increase can be attributed to new products and Qspeed. So, Qspeed also contributed to the increase.

Qspeed was roughly about $2 million of additional inventory increase in Q4.

Got it. And can you give us LED as a percentage of sales for the quarter? And then also for the full year, if you have that handy?

We said roughly that LED was approximately about 5% of our revenue for the year.

It's $14 million out of $300 million.

For the full year?

Full year.

But I'm assuming that for Q4, the percentage is likely higher. Is that a fair guess?

It's actually pretty similar. As we mentioned, it really only increased slightly in the fourth quarter. So, the percentage of revenue is about the same.

Okay, got it. And you've been talking a lot about the yen on the call today. Can you give us any commentary on the gold prices? Because I know you talked a little bit about that last quarter. And will that affect the Q3 gross margins at all?

Did you say Q3?

Yes. Actually ,I meant Q3 very specifically.

Q3 of 2011?

Yes. Or even in the nearer term, I guess, either way. Whatever you can comment on.

Okay. Most of the impact for gold prices was included in Q4 results. We have a very slight impact in Q1, but most of the decline in gross margin we are projecting for Q1, is primarily from the yen exchange rate getting worse by about 10% a few months ago. And staying there. And as far as the overall impact of gold, it happened kind of over the last, I would say, two or three years. But it happened in steps. It didn't happen gradually, because to some extent our vendors absorbed it. And at some point, they could no longer absorb it.

So, I would say the net impact of that is roughly in the order of 1% over the last couple of years. But most of it happened in the last, I would say, six to eight months because that's when it was passed on to us. So, if you convert all of our products away from gold, then that will be the kind of improvement in gross margin you would get. So, the yen is a much bigger impact.

Andrew, I just want to clarify one thing. What I said was that the $10 million of the total inventory of the $62 million was new products and Qspeed, of which Qspeed was $2 million.

Okay. Thank you. One more question. You mentioned that you had that marketing event in Q4, an LED design event. And I'm just curious, if you look at your design win activity, are you seeing more activity in LED bulbs? Or, is there more on the LED fixtures? Do you have any color there?

That's a good question. We have such a broad range. We have bulbs and fixtures. They probably dominate design wins. And then we also have street lighting, which in terms of number designs, is smaller. But it's at higher power, so you get higher ASP. And then we have, of course, street lighting, as I said, traffic lights, the signage, emergency lights and so on. So, I don't know the ratio between fixtures and replaceable bulbs.

Okay. And then one last question, I apologize. For the LED bulb applications, can you give us a sense of your average ASP for bulbs specifically?

Obviously, it depends on power level. But if you say it's 60-watt incandescent replacement is going to be bulk of the volume, our ASP in that application will be higher than our current ASP. I don't want to go very specific because then we'll be telling you the price of the product.

Okay. Thanks very much.

You're welcome.

Thank you. Our next question comes from Sumit Dhanda of Citadel Securities.

A couple questions. First, on the turns requirement, somewhat higher than last quarter. Is the thought that turns through the first month have been so strong that for the remainder of the quarter the comparison is similar?

I'm sorry. I am not sure I understand your question.

Turns last quarter were 15%, this quarter mid-20%s in terms of hitting the midpoint of guidance?

Right.

So, the increase in turns, what's that predicated on? Is that just that the bookings have been so strong through the first month relative to the first month of the last quarter? Do you have more backlog that you're going to deplete from previous quarters?

Yes, you're right. The bookings are much stronger in January than it was in October.

Maybe a different way of asking the same question. How does the turns requirement from this point on in the quarter compare with what it was in your conference call last quarter? Is it very similar?

No, it's actually less. I don't want to quantify it because, as we said before, that's not a direct indication of what our revenue would be, because the revenue is dependent on sell-through. And, if you--as we mentioned earlier, in Q4 our distribution inventory went down by $4 million, which means we recognized $4 million more revenue than we shipped out. So, that's why our shipments don't necessarily indicate the revenue.

I understand.

You've got to be careful with the turns data. It's a reasonable indicator, but not a definitive indicator.

Okay. On the industrial business, it corrected some last quarter. Is the belief that that's not going to be a drag on the business in the first quarter? Or, you don't have that level of visibility by end market in terms of what's driving the rebound in the first quarter?

Yes. We don't have that level of visibility. My gut tells me that we'll turn the corner just based on the strength of bookings that we see across the board. And we have our revenue in Q4 and Q1 -- projected revenue in Q1, it follows a normal seasonality. So, those two factors tell me that most likely, we'll turn the corner. We hit the bottom in Q4, it sounds like.

Okay. And my last question. Did you quantify what the lead times were on LinkSwitch-II as you exited the quarter, or early-on this quarter?

I don't know what officially, that may a be still at 12 weeks. But in reality, we are almost caught up on the demand at this point. Sometime in February, we'll be fully caught up and then we'll start building some inventory through the rest of the quarter. And by Q2, we expect to set the lead times back to normal, the four to six week lead time.

Okay. Thanks, Balu.

You're welcome, Sumit.

All right, operator, do we have any more questions?

Sir, there appear to be no further questions in queue at this time.

Okay, thank you very much. Thanks, everyone, for joining us. We'll wrap up the call there. There will be a replay of this call available on our Investor Relations website, which is investors.powerint.com. Thanks, everyone, for listening.

Thank you, sir, and thank you ladies and gentlemen, for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.