慧榮科技 (SIMO) 2009 Q2 法說會逐字稿

Ladies and gentlemen, and welcome to the Silicon Motion Technology Second Quarter 2009 Earnings Conference Call.

My name is Onyka, and I will be your operator for today.

At this time, all participants are in listen-only mode.

We will have a question-and-answer session towards the end of the conference.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

Now for the Safe Harbor.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of the operations, financial condition and business prospects.

Although such statements are based on our own information and information from other sources we believe are reliable, you should not place undue reliance on them.

These statements involve risks and uncertainties that actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons.

Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia, consumer electronics, the state of and any change in our relationship and our major customers, and changes in political, economic, legal and social conditions in Taiwan.

For additional discussions of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission.

We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release.

At this time, I would now like to turn the call over to Jason Tsai.

Please proceed.

Thank you very much.

Good morning, everyone.

Welcome to Silicon Motion second quarter 2009 financial results conference call and webcast.

My name is Jason Tsai and I'm the Director of Investor Relations and Strategy.

With me here is Wallace Kou, our President and CEO, and Riyadh Lai, our Chief Financial Officer.

The agenda for today is as follows.

Wallace will start with a review of some of our recent business developments.

Riyadh will then discuss our second quarter financial results and provide our outlook.

We'll then conclude with Q&A.

Before we get started, I'd like to remind you of our Safe Harbor policy, which was read at the start of this call.

For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S.

SEC.

For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of market yesterday.

The webcast will be available for replay on our website www.siliconmotion.com for a limited time.

To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP financial information during this call.

We use non-GAAP financial measures internally to evaluate and manage our operations.

We have therefore chosen to provide this information to enable you to perform the comparisons of our operating results in a manner similar to how we analyze our own operating results.

The reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued yesterday.

We ask that you review it in conjunction with this call.

With that, I would like to turn the call over to Wallace.

Thank you Jason, and thanks to everyone for joining us today.

I will start by briefly recapping our second quarter operation performance.

Our revenue declined to $20.3 million in the second quarter, which was around the low-end of our revised guidance.

Our gross margin was 48.5%, which is slightly higher than our revised guidance.

Net income was $1 million, or earning of $0.03 per diluted EPS.

We [are worthy to] our financial performance in more detail later on the call.

As we had indicated in our pre-announcement, our challenging operation environment continued into the second quarter.

The ongoing effect of a global economic weakness continued to drive weak consumer demand resulting in lower volume of NAND flash storage devices, and lower sale of controller supporting disk devices.

While our averaging NAND flash industry stabilization rate started increasing in the second quarter, the timing of this increase did not happen immediately.

Additionally, with more flash being supplied to OEMs for embedded memory solutions in devices such as iPhone and other smart phones.

NAND Flash is a variable to card and USB vendors.

Our card and USB customers continued facing a shortage of flash.

The higher pricing of flash that we saw in the first quarter and that was sustained into the second quarter continued to negatively affect our business.

NAND Flash prices are now significantly higher than at the start of the year.

For example, the spot and contract prices on 8-gigabit MLC components are now 75% to 100% higher than in January.

Higher flash component prices have led to a moderate increase in the retail prices for certain higher density category of cards.

Higher component prices have hampered affordability and consumer demand for memory cards.

Also, the prices of lower density NAND Flash components have increased more sharply than price of higher density components.

This dynamic has disproportionately affected our [bundled] card business, which mostly use lower density in flash components.

Higher NAND prices have also negatively affected OEM interest in (inaudible) products using SSDs and reduced consumer interest in these higher cost products.

We are now further away from widespread SSD adoption than in the start of the year.

SSD economic are not particularly compelling on most application with today's high NAND Flash prices.

While issue relating to high NAND Flash prices and shortage of flash components clearly continued to affect Silicon Motion's quarterly performance, we remain cautiously optimistic of our opportunity going forward.

NAND flash [B growth] is expected to improve in the second half as fab utilization rate increase in the variability of the next generation 40 nanometer and 30 nanometer flash as well as PLC flash become more widely available.

Also the big NAND flash chip makers are all planning further investment in new capacity and we believe CapEx next year by the industry will be significantly higher than CapEx this year.

PLC flash also known as three-bit per cell MLC flash is an important upcoming product for the NAND flash industry.

PLC flash was accelerating NAND flash affordability in terms of a lower dollar per bit.

Industry volume for PLC [were rent] over time but these new products are now result go to market issues such as lower endurance.

We are actually working with our flash partner to develop better solutions that more effectively overcome current industry issues.

The NAND flash industry is also becoming increasingly sophisticated with more product differentiation including introduction of different grades of flash components.

We are also developing better solution for our customers to more effectively take advantage for lower cost, lower grade flash component that will eventually enable them to develop storage devices result competitive performance.

We therefore believe in spite of today's challenging environment it is essential to our longer-term growth to maintain investment spend for new technologies and new products.

We continue to be the leading flash controller vendor today and we saw investment into new technologies, we intend to maintain this leadership position.

To help drive long-term growth we are also investing to diversify beyond our core flash memory card and UFD market and reaching to new end-market for solid state storage devices.

End markets such as automotive, telematics, industrial PC and consumer electronics.

While economic return from these new investments will take time to materialize, we believe investment today especially when the operational environment is difficult for our competitors will ensure that we continue as a leader in the NAND flash controller industry.

We are now beginning to reap the fruits of a previous investment.

For example, we announced during the second quarter that our controllers will validate for supporting the 34 nanometer NAND flash for Micron, the world's smallest geometry design and that these more advanced next-generation controllers are already in mass production.

We have also received a controller design win for Intel, for USB portal using the 34 nanometer flash.

Our leading-edge technology are helping the early adoption of next-generation flash OEMs, and that is steadily been improving affordability of NAND flash based storage devices.

Now I would like to turn to our mobile communication business.

Since our transition to SoC product late last year, we have made good progress with our customers and those results were evident this quarter as our mobile communication business posted a solid 42% sequential revenue growth.

The big factor driving improvement of our mobile communication business was our increased shipment of T-DMB SoC solution to all the major handset vendors in Korea including Samsung, LG, and Pantech Curitel.

Our strategy for our mobile communication product continued to focus on expending our mobile TV presence beyond T-DMB in Korea market.

We believe we are making good progress on this front as well.

We're pleased to announce a design win with our ISDB-T SoC product that will ship in tier-one OEM handsets for the Japan market early next year.

And we will begin ISDB-T SoC shipment in September quarter with another tier-one handset OEM for the Brazil market.

We have also secured design wins for our CDMA transceiver in China with a global tier-one handset vendor.

Our CDMA transceiver target OEM seeking non-Qualcomm solution as well as OEM developing, ultra low cost CDMA phones in China, as well as other markets such as India and elsewhere.

Let me summarize by emphasizing that the issue relating to economic recession, weak consumer confidence and reduced NAND supply are largely beyond our control.

We are actively planning [in actuating] strategy to manage the factors that we can control while strengthening our relation with business partner and customers.

Investing or have become efficient for new technology and for new products, and [bothering] our addressable market.

Additionally, our mobile communication products are demonstrating that good results can be delivered even during challenging time.

I'll now turn the call to Riyadh.

Thank you, Wallace.

First I will discuss some highlights from our second quarter and then provide guidance for third quarter 2009.

For second quarter 2009, our revenue of $20.3 million declined 6% sequentially.

Mobile storage products accounted for 54% of sales, mobile communications 33% and multimedia SoCs 12%, a big product mix change from the first quarter when mobile storage accounted for (inaudible), mobile communications 22% and multimedia SoCs 9%.

Mobile storage controller shipments decreased 29% sequentially while revenue declined slightly slower at 26% sequentially.

We saw a slight sequential improvement in our mobile storage ASP's in the quarter primarily as a result of better mix towards higher ASP products such as CF controllers.

Our ASP's for mobile storage however decreased 40% compared with the second quarter 2008.

Mobile communications revenue increased 42% sequentially.

The strength we saw in our mobile communications business was a result of strong shipment of T-DMB SoCs for Korea's domestic market.

Multimedia SoC revenue increased 28% sequentially.

Our multimedia SoC business increased largely due to sustained sales for industrial applications.

Gross margins also improved in the quarter to 48.5% primarily due to a better mix towards higher ASP products.

While pricing pressure for our mobile storage business is still intense, we experienced some reprieve this quarter because we were able to manage our blended ASP's 4% higher compared with the previous quarter.

Our operating expenses in the second quarter were largely -- were lower than originally forecasted due to lower R&D expenses relating to the push-out of project tape-outs.

As you may remember, our operating expenses in the first quarter were also lower than expected again, due to lower R&D expenses relating to the push-out of project tape-outs.

G&A were largely unchanged in Q2 compared to Q1.

We also benefited this quarter from deferred tax credit of $2.2 million in the second quarter.

I'll now move to our balance sheet and cash flow.

Although we reported a GAAP net loss of $6.2 million, we were roughly break even in terms of cash flow from operations and improved our overall cash and cash equivalents, short-term investment position from the first quarter by $3.1 million to $60.7 million in the second quarter.

Cash flow from the return of working capital and add-back of depreciation and amortization expenses were offset by our GAAP net loss.

Alternative net working capital, cash flow was largely the result of a $5 million reduction in AR.

With the reduced AR, we saw DSO decrease from 105 days in Q1 to 90 days in Q2.

DIO remain unchanged at 127 days as we used up inventory of legacy products and built inventory of next-generation products.

Our inventory levels are still on the high side but will continue to be worked down over time.

I will now move on to our guidance.

As Wallace had commented in our earnings release although we are seeing some signs of improved NAND flash supply, flash component sales volume remains constrained, flash prices remain high, and overall consumer demand continues to be lackluster.

We are however encouraged by the continuing ramp of next-generation flash and our traction with our NAND flash business partners and customers.

We are also encouraged by our recent mobile communications design wins and sales contributions from this product line.

We therefore expect a slight improvement in our business in Q3.

We expect third quarter revenue to be flat to up 10% sequentially.

We believe our third quarter gross margin will remain relatively stable within the 46 to 48% range.

We're targeting operating expenses excluding stock-based compensation, acquisition related charges and other one-time items to be in the range of $14 million to $15 million.

As we have mentioned we are actively investing in new products and technologies to help drive longer-term growth for our business.

Our operating expenses over the past two quarters were lower than expected due to delayed timing of certain development schedules.

Operating expenses is expected to be higher in Q3 largely because previously delayed R&D projects will now creep up in the second half of this year.

SG&A spend are expected to be largely unchanged sequentially.

We will now open the call for your questions.

Thank you.

(Operator Instructions) The first question comes from the line of Quinn Bolton with Needham & Company.

Please proceed.

Hi guys.

I was wondering if you could talk a little bit more about sort of the mix that you expect in the third quarter.

You saw a nice jump in the mobile communication driven by the T-DMB mobile TV SoCs.

I was wondering if that strength is expected to continue?

Or do you see the mobile storage starting to recover a little bit faster quarter-over-quarter given some of your comments about increased supply coming on line?

We believe our mobile storage product line will slightly recover in the third quarter.

Mobile communication product line will maintained strong growth in third quarter.

And is the mobile com still driven by primarily the T-DMB or is it the China transceiver -- CDMA transceiver win sort of a --

(inaudible) by both, T-DMB SoC as well as China CDMA, RF transmitter.

Okay, good.

And then you had mentioned the TLC business and that you're working on and you're with partners on controllers, any sense when you think that could become a meaningful part of the business?

It depends on the flash maker when they move to mass production.

We believe it could be materializing late third quarter or fourth quarter.

Okay, great.

And then just on the NAND side of things, you'd -- one of the comments you made was that supply is constrained as the OEMs are taking a significant portion of what's being manufactured today.

Any sense you have is -- my guess is there are probably some seasonal builds that will take place this quarter, but most of the seasonal builds may be over by the end of September, early October.

Do you think that that helps supply of NAND devices into the flashcard channel?

Really probably more heading into the fourth quarter than perhaps the third quarter, but can you talk about how you see maybe just seasonality in the OEM business perhaps affecting the channel supply?

Yeah, it's very difficult for us to comment flash-makers' strategy.

How they can make most profits on their business model.

And we believe due to economic slowdown, when they reduce capacity, they plan to ship higher percentage of NAND component to OEM for embedded solution.

That will stabilize the NAND pricing.

And as we can tell in the beginning of the third quarter, the supply for the NAND maker still in constraint mode.

And although we expect to see better supply in later part of the second half, but that we want to maintain cautious and we feel optimistic about the future growth in the later part of second half.

But currently we do not see sufficient supply from NAND makers.

Okay, great.

And then just lastly, any comments you can make about what you see on the pricing for mobile storage in the third quarter.

I know you said you saw a slight recovery in Q2, but any thoughts how you are looking at pricing this quarter?

Pricing -- on the pricing side, it's going to be -- it's difficult to comment given the volatility of our product mix.

It's quite sensitive to the products that we sell.

But we would expect pricing to be more stable for the third quarter compared to what we saw in the early half of this year.

Okay.

And then just, Riyadh, just a clarification.

I think I missed your comment about the slight increase in pricing.

I think you said it was related to mix, but can you just repeat your commentary about why the ASP stabilized in the second quarter?

Sure.

Within our storage products, we have a number of products, some that are lower ASPs, other that are higher ASPs.

Products with higher ASPs include controllers for CF controllers.

The proportion of our products with the higher ASPs increased in the second quarter resulting in a blended ASP that we actually increased for the storage products in the second quarter.

Okay.

Great.

Thank you.

Your next question comes from the line of Daniel Amir with Lazard Capital Markets.

Please proceed.

Thanks a lot.

The first question is, in terms of your ability to maintain gross margins at these levels, what -- how much of your decision to walk away from business has actually impacted your topline compared to actually your customers not able to get flash and actually there is unit growth decline.

I'm just trying to quantify how much is it a decision of yours to maybe give up some business just in order to maintain better margins?

Well, that's a very good question.

Sometimes, we do face a very difficult decision, because the very competitive pricing from competitor who has very, very large inventory in controller.

So, I cannot give you exact number, probably around 10 to 20% of business we turn down due to very low ASP.

Okay.

And then the second question, in terms of diversification plans that I guess you prepared in the pre-prepared comments, can you a bit expand what you're looking at there, any plans, how you get there in order to penetrate those markets or what type of products are we looking at?

We cannot comment on detailed solution, but what we can state is we do plan to extend our solid-state solution into embedded solutions.

So it's not just solid-state controller for notebook, netbook.

We're interested in the automotive, telematics industrial PC as well as certain consumer electronic devices, as that can help us to expand the customer demand and grow the market.

We also focus on three-bit-per-cell development and we believe that ASP compared with MLC controller could be higher, and it give us better margin in competing in the market.

So in terms of the SSD there, is this a six-month opportunity or is this more of a 2011 type of opportunity?

I mean what is kind of your take there?

We believe that it definitely would be between six-month to 12-month opportunity.

Okay.

And then Riyadh, can you clarify the OpEx issue, so we have a bump up in OpEx this quarter, it seems like for you to tape out some R&D.

What are we seeing for Q4?

I mean, we're seeing it back at the levels of Q2 or are we seeing it more at the higher elevated levels?

Spend in -- OpEx spend in the second half of the year will be higher than in the first half of the year.

In first half of the year, we have essentially underspent, we provided guidance of -- and spent much less.

In the first half of the year, we've underspent compared to guidance for -- by about $3 million to $5 million.

Our guidance going into the third quarter we are guiding forward spend, that is a little bit higher, but all in all it's really about R&D spend that did not take place in the first of the year, taking place in the second half of the year.

You have the fourth quarter R&D at the same level as Q3 or would it be lower than that?

It will be similar.

At this point in time, it's difficult for me to comment exactly what the number could be.

But it will be at a higher -- at a more elevated level compared to what we saw in the first half of the year.

Okay.

Great.

Okay.

I'll just get back into the queue.

Thanks a lot.

Your next question comes from the line of Dunham Winoto with Avian.

Please proceed.

Hi, guys.

Thanks for taking my question.

First question I have is I guess is for Wallace.

I know that you said that supply of NAND components is affected by the demand from the embedded market especially in Q2 and maybe to parts of Q3 as well.

But can you give us your thoughts maybe near-term to longer term, what you feel about the embedded market?

Is it something that you think will be the market that grows faster meaning the card market from here on out we'll never see the kind of the growth rate that you've seen in the past or is this just a matter of the card market being weak at this time?

We believe that card and USB market will continue growth when the market recover.

Because of flash maker, I think today they are looking for profitability is more important than volume.

So they have their own challenges in this model, I cannot comment.

And we believe the second half definitely see supply chain -- it's better in this first half of 2009.

And embedded solution, embedded market will also grow, but however it's a card market and USB, USB flash drive market will also grow when the market recover.

Is that true for the handset market also?

I mean I know a lot of growth pieces are coming from the higher end handsets that use a lot of embedded memory, but what do you think would be the growth opportunity for handsets with slots?

Yeah, and this is Riyadh.

On the handset side, smart phones are important driver for continued growth of memory cards.

In fact, we've sold a more advanced smart phones, whether from RIM or Palm.

About the multimedia capabilities built into these phones, they're really providing a compelling platform for consumers to want to use more memory in order to take advantage of the capabilities.

And a lot of the memories for these smart phones other than the iPhone are coming via slots, card slots and that should help further the growth of our market.

In addition, as we mentioned, in the past 30% of our controller business in bundled card business.

In this year, because of lower density NAND flash supply, it become shortage.

That's why [that impact our business seasonally].

We believe when the flash price and stock going down, and the supply for low density become more sufficient, and our card controller business going to recover strongly.

Okay.

Can you give us a sense of what your share is in the embedded market controller wise?

Our share in the embedded market is very small today.

Majority is supplied by flash maker themselves.

Okay.

Riyadh, maybe one question for you.

You talked a little bit about blended pricing being up a little bit and I think the figures that you've provided were year-on-year.

Do you care about providing what the sequential growth is?

We've provided both numbers.

Our ASPs declined significantly, this is purely storage products, declined 40% on a year-over-year basis and increased six -- 4%, I'm sorry, 4% sequentially.

That's for mobile storage?

Yeah, on a year-over-year basis, we saw significant ASP degradation in the first quarter.

And going into the second quarter ASPs improved as we started selling on a product mix basis, more higher ASP products, products including controllers for CF cards.

Sure.

And what are the comparable numbers on a sequential basis for multimedia and mobile communications?

Our ASPs, it's difficult to comment exactly on ASP, given that for our communications and multimedia products, there are a host of a different products with widely divergent ASP levels.

For example, on our communications side, our ASPs increased because we were selling more and more SoC products that carried higher ASPs.

On our multimedia products, given the high ASPs that we have with our graphics products compared to our imaging and other products, it is quite sensitive to how much graphics we sell relative to other products.

We are selling a lot of -- our sales of our graphics continue to be relatively healthy.

Okay.

But on a blended basis, ASP for the quarter was up, right, sequentially?

That's correct.

Okay.

So just one last thing, how about tax rate guidance?

Can we expect another tax credit in Q3 or Q4 or are we done?

We are expecting another tax benefit in the third quarter.

The reason we have the $2.2 million of tax credit or tax benefit in the second quarter largely is a result of our negative profitability.

We have a lot of tax benefits from operating in Taiwan and Korea.

These tax benefits are useful when we're making profits.

When we're not, they become a deferred tax asset.

So that's largely the reason why we have the tax benefit in the second quarter.

Into the third quarter, our expectation is we'll probably be able to enjoy about two-thirds -- approximately two-thirds of the benefit on an absolute dollar level that we had in the second quarter if everything is held constant.

R&D spend could differ, so there may be differences in third quarter, but holding everything constant, it should be roughly about two-thirds the benefit we got in the second quarter.

Okay.

Got it.

Thanks very much.

Your next question comes from the line of Mike Crawford with B.

Riley & Company.

Please proceed.

Thanks.

It's Mike Crawford from B.

Riley & Company.

Back to the tape-out.

So you've pushed a bunch of tape-outs out of Q1 and Q2 and now they're falling in Q3 and Q4 and are these -- what nanometer tape-outs are -- how much are we talking for these mass sets?

Mike, charges relate to 90 nanometer.

And those are running what, six or $700,000 for a mass set

Mass Mass set about $800,000.

And how many are we talking here?

About two projects for 90 nanometer and two projects for 0.11 micron technology.

Okay, great.

And then on the supply issue for your customer are you aware of any different strategies your top customers are taking to procure -- to secure the procurement of flash such as entering into longer term contracts or strategic agreements with the NAND flash producers?

We first found the customers start to have a prepayment for the flash maker to secure the supply.

Not that many, but there are a few, they had started to do it from second quarter.

Okay.

If that was the -- if they are starting to do that now, I guess, could you just take up, I mean, couple of months to kind of clear up the log jam so they can start getting products.

Is that your expectations?

Your mean related to flash supply portion of the --?

Yeah.

That we really don't know because that depends on the strategy from flash maker.

Some sort of flash makers they want to come show the supply and then low and some maybe want to grow the revenue.

We don't know the strategy they plan to do in second half.

Okay, all right thank you.

Your next question comes from the line of Gary Hsueh with Oppenheimer & Company.

Please proceed.

Great.

Yeah, just a quick question here about your margin profile in the back half of the year and in 2010.

So you're benefiting from just a product mix in your mobile storage business in terms of ASPs improving to CF cards.

When do we get to recognize the benefit of the tape-outs that you've already completed and qualified for as 34 nanometer.

When should that start benefiting the P&L in terms of gross margin and to what extent do you think it could benefit the P&L in terms of gross margin?

Just for instance, assuming the mobile storage business kind of gets back up to that 70% of revenue kind of level, can we really start pushing the needle in terms of gross margin getting back to over 50% in 2010 with 34 nanometer.

It's a difficult question.

We'd definitely love to, but it's very hard to calculate whether we are able to or not able to.

But however, we believe controllers for three-bit-per-cell will have a better ASP and better margin.

We believe when three-bit-per-cell and moving to reasonable volume, a percent of net output, we will benefit from the gross margin.

Okay.

I don't know if you want to answer this, but if you migrate from two-bit-per-cell say 4x nanometer nodes to three-bit-per-cell 3x to 2x nanometer node.

What kind of benefit in terms of ASP and gross margin would you see from the controller side?

It depends on timing, so today we are ahead of competition in three-bit-per-cell solution.

So it all depends on the volume shipments from the flash makers, when they are going to move to mass production, what percent of output from the NAND, total NAND output they plan to do in this year, because other flash makers already have the budget for the CapEx.

So we probably won't see a significant difference or increase for the three-bit-per-cell.

But however for 2010, according to several flash maker predictions, the total output for three-bit-per-cell could be 25%.

So we might benefit the ASP and gross margin, if the three-bit-per-cell TLC can reach a reasonable percentage of the total NAND output.

Okay.

Okay, great.

I guess we'll wait and see in 2010.

And just a more near-term question, in terms of the ramp-up, in terms of tape-out activity, I mean obviously, I kind of look at my model and flat to -- your guidance for basically, revenue growth of flat to up 10% isn't awe-inspiring.

And I'm just wondering what you see in terms of visibility in the back half of 2009 or maybe even visibility in your discussions with customers in 2010 that would instigate you to kind of put back on the front burner some of these tape-out activities that you had previously sort of shelved?

It's a difficult question.

I mean there is a lot of volatility, a lot of unknowns, the visibility of the end demand is not good at all.

In addition there is also a lot of changing strategies within the NAND flash makers as well the handset OEMs that have caused us to change our R&D schedule and resulted in a different R&D tape-out schedule than what we had originally anticipated.

It may in fact transpire that the schedule that we have right now may continue to change.

It's difficult to say exactly how things may shape up, but we do expect market conditions to gradually improve as the balance of the year progresses.

Hopefully towards the end of the year, life will be a lot better than what it has been in first half of the year.

All right, thank you so much.

The majority of tape-out with 90 nanometer or 55 nanometer will be in mobile communication products.

The majority tape-out for the mobile storage product line will maintain within 0.13 micron, 0.11 micron.

So we will have to have a reason to tape-out with 90 nanometer due to certain major customers or major growing factor.

Okay.

Thanks for that classification.

(Operator Instructions).

At this time, there are no additional questions.

So, I will like to thank you for joining us today.

We will be attending the tenth annual Pacific Crest technology leadership forum and the 29th annual Canaccord Adams global growth conference in August.

Thank you again for your interest in Silicon Motion.

Goodbye for now.

Ladies and gentlemen this concludes the presentation.

You may now disconnect.

Thank you and have a good day.