Power Integrations Inc (POWI) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Power Integrations second-quarter financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Joe Shiffler. You may begin.

Thank you. Good afternoon, and thanks for joining us to discuss Power Integrations financial results for the second quarter of 2012. With me on the call are Balu Balakrishnan, President and CEO of Power Integrations, and Sandeep Nayyar, our Chief Financial Officer.

During today's call, we will refer to financial measures not calculated according to Generally Accepted Accounting Principles. Please refer to today's press release available on our website at www.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 today, including the Q&A session, 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 words as will, would, believe, should, expect, outlook, estimate, plan, goal, anticipate, project, potential, schedule, forecast and similar expressions that look toward future events or performance. Forward-looking statements are based on current information that is, by its 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 caption, Item 1-A risk factors in Part 2 of our most recent Form 10-Q filed with the Securities and Exchange Commission on May 8, 2012.

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. And now, I'll turn the call over to Balu.

Thanks, Joe, and good afternoon. Like many of our peers, we are experiencing a soft patch in demand, driven by global microeconomic conditions. After relatively healthy orders through the month of May, bookings slowed significantly in June, accompanied by a decrease in distribution sell-through, suggesting that demand had softened, or at the very least, that the end customers have become more cautious about taking on inventory in the face of uncertain demand conditions. The slowdown was most pronounced in the consumer market, which is our largest end market, at about 40% of sales. Although we saw solid sequential growth in consumer appliances, revenues from consumer electronics applications declined at double-digit rates sequentially, resulting in a mid-single-digit decrease for the overall consumer market.

Communications revenues were also down mid-single digits, as a result of weakness at specific end customers in the mobile phone market. We did see continued strength in the industrial end market, which grew at a double-digit rate sequentially, excluding Concept, driven by LED lighting, metering, and industrial control applications, among others. Including the impact of Concept acquisition, industrial revenues increased nearly 50% sequentially. Revenues from the computer end market grew mid-single digits sequentially, on strength in desktops, including both standby applications and the continuing ramp of high-powered products for desktop main power supplies.

All told, second-quarter revenues were $76.4 million, up 6% sequentially, and roughly flat excluding the impact of Concept acquisition, which closed on May 1. While revenue came in below expectations, non-GAAP gross margin was up more than 3 percentage points sequentially, thanks to continued execution on our cost-reduction efforts, plus a more favorable end market mix reflecting the relative strength of industrial and consumer appliance applications. Of course, changes in mix can be transitory in the short term, and we do expect a slightly less favorable mix in the second half of this year, as we ramp new designs in lower margin markets like mobile phone chargers.

But it's clear now that our efforts to grow revenues in markets like industrial and consumer appliances have resulted in a sustainable shift in our end market mix. Whereas a decade ago, roughly two-thirds of our sales came from cell phone chargers and PCs, today nearly two-thirds of our revenues come from industrial and consumer applications, where churn is lower, margins are higher, and the customers tend to place a greater value on factors like reliability and efficiency.

Overall, we are ahead of plan with respect to the gross margin trajectory we have discussed on recent conference calls, and we expect our non-GAAP gross margin to remain above the 50% benchmark for the balance of the year. A stronger gross margin, combined with our new lower tax rate, should enable us to continue delivering healthy earnings and cash flow, even in the event that demand remains muted. Notwithstanding the near-term macro headwinds, we remain focused on the unique set of growth opportunities we have talked about over the past couple of years, including energy efficiency, LED lighting, and the expansion of our addressable market to include higher power levels.

Regarding energy efficiency, we are seeing increased design activity by customers working towards the new European limitation on standby consumption, which will be reduced from its current level of 1 watt, down to 500 milliwatts beginning in 2013. We are seeing particular interest in our Zero products, which target specific sources of standby consumption in appliances, computers, and a number of other applications, giving designers a convenient, cost-effective way to reduce waste and meet the tighter standards.

Standards development continues in the US as well, including a rule-making process now underway at the California Energy Commission, which will result in new standards for end products such as game consoles, displays, set-top boxes and computers. New energy specifications for TVs are scheduled to take effect next May, while the Department of Energy is well on its way to enacting some of the world's tightest efficiency standards for external adapters and battery chargers. The push for higher efficiency in chargers and adapters is especially noteworthy in light of rising power requirements for mobile devices. High efficiency and low standby consumption become more difficult to achieve, cost effectively, as power levels rise, requiring ever more advanced power [conversion] products. Two weeks ago, we launched LinkSwitch HP, the latest in our LinkSwitch line of primary site control chips with exactly this need in mind.

Power Integrations pioneered primary [site integration] with our original LinkSwitch more than a decade ago, and LinkSwitch remains the industry's leading primary site product line. The key benefit of primary site control is the ability to sense the output of the power supply through the transformer, eliminating the need for unreliable, expensive optical feedback circuitry. Because these feedback components consume meaningful amounts of power, their elimination gives primary site control an inherent advantage when it comes to meeting stringent efficiency specs.

The key limitation of primary site control until now has been its lack of suitability above certain power levels, where a high degree of accuracy is harder to achieve without feedback circuitry. LinkSwitch HP breaks through this barrier with an unprecedented level of accuracy, enabling the use of primary site control in applications up to 90 watts of output, including adapters for such products as ultrabooks, tablets, set-top boxes and LCD monitors, with exceptionally low load consumption of less than 30 milliwatts.

LED lighting continues to be another important growth driver for us, with double-digit sequential growth, and more than 100 new design wins in the second quarter. We also saw strong growth in revenues from the 50- to 500-watt market, and we remain on track to roughly double sales of these products this year.

On May 1, we completed our acquisition of Concept, the latest step in our efforts to expand the addressable market to include higher power levels. Concept's IGBT drivers address all three phases of the clean power ecosystem -- demand-side applications like industrial motor drives in electric vehicles, distribution applications such as high-voltage DC transmission systems, and generation applications such as solar and wind power systems. Our integration of Concept is progressing well, and while demand for Concept products is not immune to the current macroeconomic headwinds, we are encouraged by our interactions with Concept's customers since the acquisition, and are excited about the pace of design activity. Key design wins for Concept products in Q2 included a high-voltage DC transmission system in the UK, a solar installation for the India market, and a locomotive application for China, all of which we expect to start production later this year.

With that, I will turn the call over to Sandeep for a review of the financials.

Thanks, Balu, and good afternoon. I will begin with tax, where we had a significant development with positive implications for our financial model. As outlined in our press release, we have reached an agreement with the IRS that resolves our audit for the years 2003 through 2006, which has been ongoing for the past five years. The settlement validates the structure we put in place a decade ago, and enables us to realize a substantial reduction in our future effective tax rate.

The key components of the settlement are as follows. First, during the September quarter, Power Integrations will make a one-time cash payment of $42.6 million in taxes and interest. This amount is partially offset by previously accrued tax liability and valuation allowances, resulting in a net one-time charge of $15.7 million, which we recognized in the June quarter. Approximately $12.7 million of the charge is for taxes, and $3 million for interest.

Second, we expect our non-GAAP tax rate for 2012 to be approximately 13%, compared to our prior expectation of a rate in the high teens. On a GAAP basis, the full-year tax rate for 2012 will be north of 50% due to the one-time charge in Q2, but should be around 18% for the second half of the year. For 2013, we expect our tax rate to be in the high-single digits on a GAAP and a non-GAAP basis. Finally, the agreement will permit us to repatriate approximately $102 million of earnings from our foreign subsidiaries without further federal income tax consequences, which brings us a significant benefit in terms of financial flexibility.

The impact of the tax agreement on our second-quarter results is as follows. First, the one-time charge of $15.7 million resulted in a GAAP tax rate of 175%, and a GAAP net loss of $0.25 per share for the quarter. Our non-GAAP tax rate, which excludes the charge, was 9% for the quarter, reflecting the benefit of the lower ongoing tax rate, plus an additional benefit to bring the rate for the first six months of the year into line with the 13% rate we now expect for the full year. Compared to our prior expectation of a rate in the high teens, the lower Q2 tax rate contributed approximately $0.05 to our non-GAAP EPS, which came in at $0.49 for the quarter.

The other major earnings driver in the quarter was gross margin, which came in at 51.9% on a non-GAAP basis, an increase of 310 basis points from the prior quarter. We have recovered 470 basis points of non-GAAP gross margin over the past three quarters, and we are now back up to the mid-2010 level, despite significant pressure from the stronger yen, and higher gold prices over that time frame.

Continuing on expenses, non-GAAP operating expenses for the quarter were $23.8 million, up $1.2 million sequentially as the result of the Concept acquisition, but slightly below our expected range of $24 million to $25 million. Non-GAAP operating margin moved back above the 20% mark, coming in just under 21% for the quarter. GAAP operating expenses were $28.3 million, up $2.5 million sequentially, again, reflecting the acquisition including roughly $700,000 of incremental amortization expenses related to intangible assets.

We had another excellent quarter in terms of cash flow. Cash flow from operations was $27.7 million, bringing our six-month total to $49.3 million. Capital expenditure was just $1.3 million for the quarter, so we clearly had a great quarter in terms of free cash flow. In fact, cash and investments on the balance sheet totaled $133 million at quarter-end, a decrease of only $80 million during the quarter, despite the Concept acquisition. Inventory remains well within our target range, totaling $48.6 million at quarter-end. The increase of $5.7 million during the quarter was driven entirely by the acquisition, including roughly $3 million of inventory write-up that remained to be amortized at quarter-end.

Turning to the outlook, we expect revenues to be between $76 million and $82 million in the third quarter, and we expect non-GAAP gross margin to be about 51.5% plus or minus 50 basis points. GAAP gross margin should be in the range of 48% to 49%. We expect non-GAAP operating expenses to be around $25.2 million, plus or minus $0.5 million, with the increase driven mainly by the additional month of Concept expenses, plus some headcount [additions] at Concept. GAAP operating expenses should be in the range of $30 million to $31 million, including approximately $4 million of stock-based compensation and $1 million for amortization of intangibles. Lastly, I expect the non-GAAP effective tax rate to be around 13%, consistent with our revised expectation for the full year. The GAAP tax rate for the quarter should be around 18%.

With that, I will turn it back over to Joe.

Thanks, Sandeep. We will open it up for Q&A now, and in the interest of time, I would like to ask callers to adhere to a limit of two questions apiece on the first round, and then, time permitting, we will be happy to come around for another round of questions. Operator, will you please give the instructions?

(Operator Instructions)

Our first question comes from Tore Svanberg of Stifel Nicolaus. Your line is open.

First question is for Balu. Balu, could you talk more from a linearity perspective how your sell-through is going, because obviously you are recognizing on a sell-through basis all your distributors, and after that slowdown you saw in June, I am just wondering what you're seeing in July and so far in August?

We don't get complete information on the monthly basis, but at the moment, inventory at our distributors is just about right. So, my expectation would be most of what we sell will go through.

Very good, and my follow-up question is Sandeep. You mentioned, I believe 9% tax rate for 2013. I'm just wondering is this going to be the long-term rate for POWI, or is it going to be a little bit artificially low next year given the settlement you're just going through?

I said 13% for the year, it was 9% only for the quarter, because of the catch-up benefit we caught up the first quarter, so that non-GAAP tax rate for the year is 13%. For 2013 and going forward, we expect the rate to be in the high -- non-GAAP and GAAP to be in the high single digits, so the 8%, 9% that you're talking about.

And it is sustainable over the long term.

Great, thank you very much, I will go back in queue. Thanks.

Our next question comes from Andrew Huang of Sterne Agee. Your line is open.

I think your June quarter revenue guidance was $78 million to $84 million, and of that, you expected CT Concept to contribute between $4.3 million and $5 million. I am wondering how much of the shortfall was due to just your Organic business, or was CT Concept a little bit lighter than you had expected?

The CT Concept revenue came in at about $4.6 million, against the previous -- I think the discussion we had was about $5 million. So, the major of the shortfall did come in that part of the business but there was a slight shortfall on the Concept side of the business too.

Got it. And then, if you don't mind me asking, the shortfall within your end markets, can you say which was the weakest relative to your expectations?

I think the major area that we have pointed out is the weakness came in communications, and as well as consumer electronics, is where we saw the weakness. And the macroeconomic conditions really attributed to that, though in the cell phone side, you could attribute that, there was a little bit of a particular end customer were we have a more significant decline that we normally expected and this is one of the larger customers, which is having challenges in the market, and if you look at the last couple of quarters, we thought they have stabilized a bit, but again, we saw a large significant decline in that one other end customer.

Got it. Sandeep, go ahead.

Andrew, to be specific, this particular customer had revenue came down 70% sequentially, and that pretty much accounts for the decline in the cell phone revenue.

Got it. Okay, and then if you don't mind me asking, in your September quarter guidance, are your expectations for CT, do they remain unchanged? Should we stick with that? The $4.6 million a full quarter dividing by 2 and multiplying by 3?

The way I would look at it, we expect to be, considering the macro economic, and if you look in our guidance that we have given, flat to slightly down to the math that you are doing.

Got it. Thanks very much.

Our next question is from Steve Smigie of Raymond James. Your line is open.

Great, thank you. I was hoping you could talk a little bit about how we should be thinking about OpEx over the next few quarters? Revenues from the macros come in a little bit -- macros caused revenue to come in a little later, and so, are you taking out any actions to keep OpEx down over the next couple of quarters?

As we have indicated, one thing is that the real addition to our expenses going up in the next quarter is related to the full month -- we only had two months of Concept in Q2 and now we will have three. Plus we are making some investments in Concept. The key thing, as we bought Concept, we believe, yes the macro economic conditions are there, but we believe for us to realize the true benefits, we have to make a little bit of investment in Concept, and we intend to continue to do that for the long-term benefit in that business. Now the Q4 operating expenses should be, on a non-GAAP basis, should be similar to Q3.

Okay. And then again on the gross margin front, as we look forward, obviously you already discussed the September and the puts and takes of mix, but should we see a gross margin as we enter next year also remain above that 50%, and should we be seeing it generally march up over time, as you get newer products mixing in? How should we think about that?

I think as we talked about is that we have got more design wins coming in on the lower-margin communication business, which should be ramping in Q4, so we talked about that impact happening in Q4. It's a little too early to talk about next year. But we are hopeful that we should be above our 50% mark.

Any drastic change in either exchange rates or the pricing and so on, we should stay about 50% versus margin.

Great, I will get back in queue. Thank you.

Thank you. Our next question comes from Vernon Essi of Needham & Company. Your line is open.

Balu, I was wondering if you could elaborate a little more on the LED market, and what you're seeing out there? It sounds like things have picked back up, and I apologize, I don't know if I heard that correctly, but do you anticipate your revenue to double again in 2012 or you made a doubling comment there, and I wanted to double-check that. Thanks.

Actually, we were projecting earlier in the year, potentially a 50% increase in revenue. Not 200%. 50% from where we were last year. Given the slowdown in the marketplace, I don't believe we are going to make 50%. We will grow this year, but we don't know exactly how much we will grow, but I don't believe its going to be 50%. There's just a significant reduction in demand. However, from a design end point of view, we're doing really well. As you saw, we said in the script that we added another 100 design wins in Q2.

Is there any reason for the robustness in the design win front, or is it just things keep going on the same trajectory they have been, and the same trend line you have had in the past?

The design wins are mainly because of the large number of small customers in this business. Plus, there is a lot of churn in terms of design. They keep coming up with newer products. But of course, the macro economy determines the overall demand.

And then, I always ask this question, but is there any customer that is emerging as a larger piece of your revenue or proportion to your revenue, or do you still feel it's fairly well-distributed across smaller customers at this point?

Clearly we are seeing some of the large guys becoming more significant. And so, we have for example, design wins Phillips, Osram, and General Electric, and Samsung and so on and so forth. In the long-term, we do expect this market to consolidate, but right now, it's going through a transition.

And just a quick follow-on, Sandeep, I apologize if you mentioned this in your prepared comments, but what was your backlog coverage for the guidance of your churn component for September?

It's roughly around 40%, a little over 40%.

Okay. All right, thank you.

We need in the 40%s turns to meet the midpoint of our guidance.

Okay. Thank you.

Our next question comes from Sumit Dhanda of ISI. Your line is open.

Balu, I wanted to first ask you about the LinkSwitch HP opportunity. And I think I heard you mention ultrabooks, so I wanted to clarify that the power ranges you are talking about are in the tens of watts, and that is sufficient to meet most requirements for ultrabook models out there?

That is correct.

Okay. And then second, I know you talked about distribution inventory quote-unquote being in line with demand expectations. Can you give us what it was on a weeks basis? On a deferred income basis, it seems like it was up. Was that partly a function of what happened with the acquisition?

For the weeks it is about 5.5 weeks, and last quarter, we were at about 4.8 weeks and half the increase is related to the acquisition. Half is because of the order of business we had, and that is us the timing of how the revenue played out. But it is still within our lead times of four to six weeks.

Okay, thanks.

Our next question comes from Gus Richard of Piper Jaffray. Your line is open.

Yes, a couple of quick ones. First of all, I think you mentioned on the call that you expect your revenue to double in the 50 to 500-watt range. Is that about $16 million this year, is that right?

No, it was roughly $5 million last year, and we expect it to double this year. And so far, we are on track to achieve that.

Got it. And then, I thought I also heard you allude to a new product for the cell phone market, a sub-sidewalk product that you were going to announce or launch in the second half. Could you talk a little more about that?

The new product we just talked about is LinkSwitch HP, which addresses adapters in the power range of I would say 10 to 90 watts. The majority of the designs will be in the, I would say 15 to 35, 40 watts is where most of the applications are. And that it's a primary based, primary site regulator which means it doesn't require any feedback, and it is able to maintain a very accurate upper voltage, and also meet an extremely stringent no-load consumption of 30 milliwatts. I think this is a first time anybody has been able to do primary site regulation up to these types of power levels.

Got it. I understand, thanks, I was a little confused.

Our next question comes from Christopher Longiaru of Sidoti & Company. Your line is open.

Can you comment a little bit on where inventories are, where they were at the beginning of the quarter and what they look like now?

The inventories of the quarter are still within our targeted range, as they were in the last quarter. We are still within the 110 plus or minus range. That is been our model and we are still pretty comfortable. Part of the reason the levels have gone up this quarter is because of the acquisition and mainly related to the write-up of inventory that you are required to do as part of an acquisition accounting.

And as far as your lead times, are they still within the four to six week range?

That is correct.

And toward the lower end or the higher end of that range?

It varies by product, and that's why it's hard, so that's why we give the range.

Okay. The only other question I have is just in terms of expenses, and a conclusion of this audit. Should we see the SG&A expenses move down slightly after the audit, after September?

Obviously, you are talking in the fourth quarter, you mean to say?

Yes, in fourth quarter.

The main reason for the increase, obviously we had expenses related to that, but the primary reason for the increase from the second to the third quarter was a result of the acquisition, where we have three months versus two months. And added to, as I have alluded earlier, when we acquired Concept, we knew we had to make investments in this to grow this business, for it to realize the full potential. That's what you see the increase in expenses in the third quarter, but the fourth quarter on a non-GAAP basis should be pretty similar to the third quarter.

Okay, that's all I have for now. Thanks guys.

Thank you. We have a follow-up question from Tore Svanberg of Stifel Nicolaus. Your line is open.

First follow-up is Balu, you talked about a new European standard for -- I think this is for next year. I am just wondering, since this is such stringent compliance, are you seeing non-European regions starting to move into that same form -- I guess it is less than 50 milliwatts?

It's actually 500 milliwatts, but it covers a very broad range of products, including appliances, the large appliances. To answer your question, the Zero products that we have introduced are extremely easy to add on to an existing design.

So, what they do is, they allow for the CAPZero and SENZero and so on to be used in European models, but when they use the same product for other countries, they just don't populate them. So at least at the moment, this is only for the European market, but it's very possible in the long-term, there will be other standards that will come into effect that could broaden this to the rest of the world.

Very good, and the other follow-up was to Sandeep. Sandeep, just to clarify the cash outflow for the September quarter related to the tax audit, is basically going to be none, right? Because you are he had the liabilities taking care of that, and you already took the charge this quarter. Is that how I should look at it?

You should look at it there will be eight cash outflow of about $43 million. We have accrued for all those taxes in our rate over the years, but the differential [is of the division], so they will get cash outflow of $42.3 million, but the P&L hit was much lower, as a result that we had already accrued for the liabilities [why] in our tax rate in the past.

The actual settlement only occurred last week, so the cash outlay will happen in Q3.

Understood.

So we had reached the agreement with the IRS during the quarter, and after you reach an agreement, it takes, the official signing happens on August 2, but we had reached in principle an agreement during the quarter.

Very good. Very good, thank you very much.

(Operator Instructions)

We have a follow-up question from Steve Smigie from Stifel Nicolaus. Your line is open.

With regard to the cash that you are repatriating, is that primarily going to be used for continued dividend payouts or are you thinking an additional acquisition?

As we have said, the uses of our cash is obviously, we always look at opportunistically whether we need to make additional internal investments, whether we need to do M&A, dividends or buyback, and it will be still a combination of all four. And as you have seen over the past, we have done different things over different points of time, depending on what the business -- depending on the business, we will evaluate and opportunistically make those investments.

Okay. And Balu, can you talk a little bit from a strategic perspective. I think over time, you have been trying to move away from the hand set charger market, not the you didn't continue to invest in it, but that's traditionally been a fairly volatile area where you can have low-cost folks come in and disrupt it, legally or illegally, so I think you have been making investments to try to grow around that. Seems like there's been a lot more competition in that space recently.

I'm just curious if you can comment on your commitment to that hand set charger space at this point, and what you take about the landscape at this point? If you could include in that, there's obviously a couple major hand set vendors out there, and are those guys to focus on, or do you view this as cyclical and try to focus on everybody still?

We have no intention of just walking away from that market, because we think that it's a good market to test how competitive you are. But because it's a smaller portion of our revenue, we are quite picky about what businesses we take. We only take businesses where the customer is willing to provide the value that we offer, which is reliability, efficiency, and so on and so forth.

So what I would say is that our share of that market will fluctuate, but my expectation is that we will grow our share over the next year or so, not necessarily in Q3. Q3 will most likely be flat, maybe even slightly down, but Q4 onwards, we have a number of designs coming into production, so we expect that to grow.

Okay. And then with regard to your focus on ultrabooks, in the past, you've come out with some fairly good products for notebook adapters, and I think at the time, ran into issues where there were only a few suppliers of the notebook adapters, and they wanted to use either the cheapest solution or just wanted to make sure their engineering teams remain employed. Is there something that's new about the ultrabook market that you think will now allow you guys to penetrate there? Where a value-added solution will be adopted, rather than just going for the cheapest device?

I think the difference is that there are broader set of vendors who provide adapters for the ultrabook and the LCD monitors, and tablets, and also modems, and routers, I would say. So we address all adapters in the power range we just discussed, and the challenge we have had on the notebook is that there are very few, there are only literally three companies that provide most of the notebook adapters, and they already have frozen the design, and they were unwilling to change that design, because of the cost involved in changing the design. I don't believe that restriction is there in the market that I just mentioned for LinkSwitch HP.

Great, thank you.

We have a follow-up question from Andrew Huang of Sterne Agee. Your line is open.

Just two clarifications. First on LED lighting, do you have an opinion on why the business slowed this year? I think you referred to some kind of a transition. I was wondering if you could clarify.

I think the biggest one is the overall economy, macro economic situation, but also there is a lot more competitors. So it's a little harder to grow share when you have so many new competitors. Having said that, I think the LED market will continue to grow, and even with the added competitors, our revenue should continue to grow. The question is how much of will grow each year, and that remains to be seen.

Should I take that to mean that there is more ASP pressure for your LED lighting chips?

Not necessarily because of competition as much as that there is more consolidation. So as the market consolidates around the large lighting companies, then there will be more pressure on margins. Right now, the margins are still pretty healthy in the LED market because it is still dominated by hundreds of smaller customers, but we are definitely seeing signs of consolidation at this point.

Okay, got it. Actually, when you see signs of consolidation, can you give me an example of what you're seeing?

All of the big guys. The ones that you would think of, like Phillips, GE, Toshiba, Osram, we see them taking a much more aggressive role in offering LED products. Initially, the market was really dominated by very small, hundreds of small customers, but now we are seeing that the big guys are gaining momentum in the LED market.

Got it. Okay. And just a follow-on question, now that you have the CT acquisition, is average ASP no longer meaningful?

Yes, I would say so. For example in Q2, average ASP was $0.31 versus $0.28 in Q1. And if not for CT Concept, it would've been $0.29, it's still gone up a little bit, but CT Concept took us to $0.31 because even though they are 10% of revenue, their ASP is two orders of magnitude higher.

Right, so that's basically no longer a meaningful metric, I think?

I think so, yes.

Okay, thank you very much.

Thank you. Our next question comes from Gus Richard of Piper Jaffray.

Yes, thanks for taking the call. I noticed that the R&D is creeping up from where it has been over the last five years or so. And I was wondering if the new operating model is going to be a little but higher in terms of a percentage going forward?

We are certainly investing in a number of R&D initiatives for the future. So it is very deliberate, as you might remember, we bought an R&D outfit in the East Coast that is working on some important technologies for us. Plus even internally, we have grown our R&D to address some new areas that we want to be in. So yes, that is very deliberate, and that is the investment we are making for the future.

Okay, so should we think going forward about R&D being between 14% to 15% as we think about our models over the next couple of years?

On a non-GAAP basis, it's hovering around 13% give or take, this quarter, because the revenue, it has gone up to 13.7%. But somewhere in the 13% on a non-GAAP basis.

Okay, so not all the way up into the 14%s?

The revenue growth obviously, even if the R&D grows somewhat, but the percentage I don't think it will change that much.

Okay and just in the press release, there wasn't a split between Tiny, Link and Top, could you give us that please?

In the past its been easier because we have very simple product lines, and now with high-power adding a lot of product -- Q-Speeds having a lot of product, and CD having -- it's going to get very impractical and that was done historically, so I don't think we are going to break that out going forward.

Got a, okay, that's it for me, thank you.

Thank you. I'm showing no further questions in the queue at this time. I will hand the call back to Joe Shiffler for closing remarks.

Okay, that will conclude the call for today. Thanks everyone for listening, there will be a replay of the webcast available on our website, which is investors. PowerInt.com. And thanks for listening, and good afternoon.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect, and have a wonderful day.