Silicon Laboratories Inc (SLAB) 2003 Q3 法說會逐字稿

Good afternoon. Thank you for standing by. Welcome to the Silicon Labs' third quarter earnings conference call. At this time I would like to remind all participants that they will be able to listen only until the question-and-answer session of the call. Also this call is being recorded. If anyone has any objections, you may disconnect at this time. I would like to turn it over to your conference host, Ms. Shannon Pleasant. You may begin.

Thank you. Good afternoon. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results for the third quarter. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the investor page of our website at www.SILABS.com. This call is being simulcast and will be archived on our website.

There will also be a telephone replay available approximately one hour after the completion of the call at 1-800-638-8815 until November 20. I am joined today by Nav Sooch, Chairman and CEO; Dan Artusi, President and Chief Operating Officer; and John McGovern, Interim Chief Financial Officer. Nav will summarize our financial results, John will give a more detailed financial presentation, and Nav and Dan will review business activities this quarter and provide guidance for the fourth quarter.

We will have a question-and-answer session following the presentation. Before we begin, let me comment regarding the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Our comments and presentation today will include forward-looking statements or projections that involve substantial risk and uncertainty. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time.

By discussing our current perception of our market and the future performance of Silicon Laboratories and our products with you today, we're not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

Also, the non-GAAP financial measurements which are discussed today and in our earnings release are not intended to replace the presentation of Silicon Laboratories GAAP financial results. These measurements merely provide supplemental information to assist investors in analyzing Silicon Laboratories' financial position and result of operations.

However, these measures are not in accordance with or an alternative to GAAP and may be different from non-GAAP measures used by other companies. Silicon Laboratories is providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations. Now I would like to introduce our Chairman and CEO, Nav Sooch.

Thanks Shannon. We had a great quarter with revenues totaling a record 82.9 million which is a 20 percent sequential increase over last quarter. Operating income was 20.7 million or 25 percent of revenue. Dan and I will review the business developments in more detail after John reviews the rest of the third quarter financial results. John.

Thanks Nav. Our revenues of $82.9 million for the third quarter of 2003 represent a 60 percent increase over the same period in 2002. Following is the breakdown of revenues by product area for the third quarter. Wireless products represented approximately 53 percent of revenues; wireline products represented approximately 47 percent of revenues. Next quarter we will be breaking out revenues into two categories that better reflect the nature of our business, broadbase mixed-signal revenues and mobile handset revenues.

Broadbase mixed-signal revenues will include our silicon DAA, ISOmodem, ProSLIC, DSL analog front end, clock chips, optical transceivers, and CDRs, RF Synthesizers for non-handset applications, as well as the Cygnal MCU products. The mobile handset revenues will include the Aero family and the remaining percentage of synthesizer business still shipping into handset. We believe this breakout better represents the growing diversity of our business.

Gross margin for the third quarter was 54.1 percent, the lower end of our typical mid 50 percent range. Research and development expenses in the third quarter increased slightly to 12.3 million or 15 percent of revenues. Selling, general and administrative expense increased in total dollars to 10.7 million from the 9.5 million in the second quarter, but decreased as a percent of revenues to 12.9 percent from 13.8 percent.

GAAP net income in the third quarter was $13.9 million, or 26 cents per share. Excluding a $1.2 million non-cash charge for amortization of deferred stock compensation, adjusted operating income for the third quarter was 21.9 million representing 26.4 percent of sales, up from 17.6 million or 25.5 percent of sales in Q2. The result in diluted net income per share excluding the non-cash deferred compensation charge was 29 cents, an increase from 24 cents in the second quarter.

In the third quarter, our tax rate was 32 percent. We expect the tax rate to remain at 32 percent for the fourth quarter but anticipate that it will increase to 34 percent in 2004. We are exploring initiatives to reduce this tax rate over time. Our balance sheet remains highly liquid. Cash and investments at the end of the third quarter increased to 143 million. Strong demand resulted in significant shipments in the month of September increasing accounts receivable to 49.1 million with days sales outstanding increasing to 53 days.

Inventory increased to 18.6 million with days of inventory at 44 days which translates to 8 annualized turns. We're well-positioned with inventory to satisfy customer demand in the fourth quarter. On September 25, we announced a definitive agreement to acquire Austin based, Cygnal Integrated Products. Cygnal develops analog intensive, highly integrated 8-bit microcontrollers.

This acquisition which is expected to close in early December will be slightly diluted to Silicon Labs in 2004 becoming accretive during 2005 on a non-GAAP operating basis which excludes acquisition related charges. Cygnal's business will be comprehended in our Q1 2004 guidance in January. I will now turn the discussion back to Nav for a review of our business performance.

Thanks, John. Our business was strong across the board in the third quarter with revenue increases for all of our product areas. First, I will talk about our broad based mixed-signal productline. The silicon DAA had a strong quarter as a result of continued adoption by PC manufacturers and PC market growth, typically in notebooks. Gartner, a market research firm, expects the notebook market to grow 16 percent to top 35 million units by the end of 2003 and expectations are for 20 percent growth in 2004.

This analog modem shift (technical difficulty) with the 100 percent of all notebook PCs, we are clearly benefiting from this growth. We also gain new business in the desktop market where we see significant opportunities to increase DAA market share. In Q3, we announced that our 3055 DAA will support the Azalea (ph) Interface, a next generation modem core logic interface specification defined by Intel.

We work closely with Intel to validate the Azalea interface and we believe our Silicon DAA will be the first to support this new interface for soft modem application. The ISOmodem business had another record quarter. We announced the latest generation ISOmodem product that ranged from 2400 to 56 kilobits per second and incorporates a third generation DAA. The new generation of ISOmodem reduces component count and offers customers significant bill of material savings that will enhance our competitive advantage.

During the third quarter, we established our first significant ISOmodem design wins for settop boxes in Europe. We also identified opportunities in new applications like digital televisions and gaming machines. Our recent announcement of TiVo as an ISOmodem customer is a good example of the expansion of the customer base into new applications. The ProSLIC business included several new customers and applications in the third quarter. We began production of a voiceover IP device with a major manufacturer in China.

We also added new customers building voice over broadband customer premises equipment for the Japan market. Design wins for the clock IP family increased during the quarter as well. These devices are part of the next generation flagship products of virtually all of the major telecom equipment manufacturers. We believe that these design wins will position clock product line for rapid revenue growth as this market recovers. While our broadbase mixed-signal products gain breadth in both customers and markets, our mobile handset business is gaining considerable depth.

Wireless revenues which increased by 24 percent sequentially in the third quarter, were driven by three key factors. First, we continue to expand our customer base adding key ODMs and OEMs that are shipping globally. Aero volume customers increased to 22 in the third quarter from 16 in Q2. In last quarter's call, we mentioned that there may be pent-up demand in China due to post-SARS consumer confidence and that proved to be the case.

From handsets destined for Europe and the U.S. increased as well and many of our design wins with major manufacturers ramped. We also benefited from the integration of GSM functionality into a variety of enhanced devices. For example we announced Handspring's selection of Aero for the trio 600 handheld. The second major driver was Samsung, our only greater than 10 percent customer in Q3, representing 22 percent of revenue. Our position at Samsung remains strong as a result of a technical leadership of the Aero Transceiver family.

We also benefit from Samsung's expanding market presence. For example, Samsung announced during the quarter that it will be providing high-end handsets to AT&T wireless, the third-largest U.S. wireless service provider. Third, Aero I had an impressive ramp in the third quarter and design win activity accelerated. We added over 20 new design wins. Aero I and Aero I Plus are clearly generating considerable excitement among customers.

Samsung's first production phone with Aero I is now available in Europe and is expected to the offered by Cingular Wireless in the U.S. and by Cajun (ph) in China. I will now turn the call over to Dan who will cover additional highlights and provide guidance for Q4.

Thank you, Nav. Result in Q3 point to several trends that will have a positive impact on the company in the future. First, the success of our RF Synthesizers in XM satellite radio is an indicator of things to come. In Q3, we announced that we were honored with a zero defect award from XM radio manufacturer, Delphi. This highly coveted quality award was for IC (indiscernible) for the very stringent automotive market.

Our ability to deliver parts that meet the automotive industry's quality standard is a significant rite of passage and opens new doors for us. Second, our rapid response to the increased demand for Aero showcase the strength of our supply chain. We work closely with our world-class partners, TSMC, ASE and Amkor and executed to meet our customer's needs. As Nav mentioned the pent up demand we discussed last quarter for Aero materialized very quickly and will continue into Q4. In addition, the ramp of Aero I volumes have paralleled the very ramp we experienced with Aero in 2002.

Overall, customer's hyperproduction (ph) yields with Aero are a major factor driving demand. Finally, we are successfully gaining market share and diversifying our products, customers and markets and we expect this trend to continue. We fully intend to build a mixed-signal portfolio both for general-purpose and application-specific ICs that address a broad range of large markets with very attractive margins.

The acquisition of Cygnal will play an important role in this expansion as will new products. For example, our ADSL Analog Front End shift in volume in the third quarter. We are excited about the prospects for this productline and expect to see a gain momentum as the DSL market evolves. Looking ahead to 2005 and beyond, we believe that products currently under development will be major contributors to revenue growth.

The next generation of Aero, Aero II, is a good example. Aero II, a single chip RF transceiver, now is scheduled to sample in the first quarter of 2004 will support the DGRF base standard interface and represent an exponential improvement to the bill of material for the RF front end. Aero IIE, our transceiver for eight applications, is time to sample in 2004 to meet demand for age enabled handset that is expected to become meaningful in the late 2005 and 2006 time frame.

Before I move onto the guidance for the next quarter, I will briefly comment on operating income. Our broad base mixed-signal business gross margins are approximately 60 percent, while our mobile handset business gross margins are approximately 50 percent. We expect strong growth in both of our business areas during Q4 which should result in a similar revenue mix in gross margin as we experienced in the third quarter. We expect R&D spending to increase to approximately 16 percent of revenues and SG&A to represent approximately 12.5 percent of revenue Which we believe will allow us to maintain our target operating model. Now for the outlook.

In Q4, the company currently anticipates revenues in the range of $92 to $95 million. In Q4, diluted net income per share on a GAAP basis is expected to be 27 to 29 cents. Q4 adjusted diluted net income per share which excludes a non-cash charge is expected to be 30 to 32 cents. This guidance does not take into account any revenues or charges related to the Cygnal acquisition that will be incurred if the acquisition closes in the fourth-quarter. We look forward to reporting Q4 results in January. Shannon.

Thank you, Dan. We would now like to open the call for questions. Operator, please review the question-and-answer instructions for our call participants.

(OPERATOR INSTRUCTIONS). Mark Edelstone with Morgan Stanley.

Thanks a lot guys. Great job out there. I guess a couple questions. First, can you give us a little more insight into the gross margin in the third quarter? Was that all just mix related that took it down to the 54 percent? And then Dan I wasn't sure I quite heard your comments on R&D. What was the percentage you were targeting for Q4?

On the gross margin, our broadbase mixed-signal business really approximates 60 percent and our mobile handset business approximates 50 percent. When you blend that out it comes in at around this 54 percent that we had in the September quarter. So mix was the primary driver for that. Regarding the R&D that we expect in the fourth quarter, Dan indicated approximately 16 percent of revenues on R&D.

Great. I guess lastly, what is the headcount now and do you have a general sense, without the Cygnal acquisition, where you think headcount will be at the end of 2004?

Headcount right now Mark is in the 416 person range as we ended the September quarter. I am not really giving out any firm guidance going out towards the end of 2004 on headcount, but it does not necessarily scale with revenue because of our fabless business model, our ability to do tests offshore. So we expect to enjoy the revenue per employee that we have been enjoying here recently. We hope our productivity measure will continue in the future.

One last follow-up if I could. On the R&D, clearly not a lot of growth in the third quarter and so you were down 200 basis points as a percentage of revenues. Is that just timing of mask purchases or is there something that caused that to grow so slowly in Q3 and you are forecasting obviously pretty good sequential increase in dollars in Q4.

Certainly wafer charges are part of that. On the headcount, we are very selective about the people that we hire in the R&D area. So, I've always had vigorous hiring in that area in the first half of the year. It edged off a little bit in the September quarter, but we're still on track with our hires for the year in that area. It is a balance between headcount and wafer and mask expense.

Thanks a lot guys.

Tore Svanberg of U.S. Bancorp Piper Jaffray.

Good afternoon, great quarter. First of all, Dan, you mentioned the mix in Q4 should be fairly equal between mixed-signal and handset. Could you give us an indication of how you expect that to be in 2004?

We're not providing the guidance for 2004 yet. So, we will talk about that in the January call.

I guess maybe if you could elaborate a little bit, if you look at all of your new product lines, are you expecting the growth to be pretty balanced between all of your new products?

We have certainly a lot of products in the pipeline. We expect those to over the next 18 months to start contributing some revenue. So, we continue to push in new products through the pipeline to maintain the mix.

Very well then. Also just looking at your suppliers, there is words out there that things are getting pretty tight on the foundry side. Could you let us know how you are positioned there at this time please?

At this time, I am looking at Q4 and Q1, we are very well-positioned. We have very strong relationships. We forged these relationships during the downturn so we have solidified those and during Q3 that was a good test of those relationships and judging from the result you can see that we came out with flying colors on the execution side. So our partners have responded very well to us.

Very well. Thank you. Great quarter.

Kalpesh Kapadia of Unterberg.

Good afternoon guys. Congratulations. John, would you care to comment on the DSOs and inventory turns? I know that year in Q3 they were in the ranges on 50 plus percent DSOs and the eight turns in inventory. Is that kind of normal for Q3 and going into Q4 (indiscernible)? Is there something on longer term basis going on there?

Regarding those inventory turns, we are very satisfied with those levels of inventory turns. It's sized properly with the business. It really firms up on an indirect proof where if you had less you may not be able to satisfy the customer's requirements. If you had more inventory perhaps you run the risk of having too much. So we are quite comfortable with that in the current business environment to carry that level of inventory.

Now our business model we hope will enable us to have even higher turns on inventory as we have more offshore tests and perhaps even looking at dropships within Asia to reduce our cycle time even further. On the AR DSOs, what we had is a very strong month of September which is reflected in those DSOs, and following on, October has been fairly strong as well. So, I would say that the AR balance is also fairly normal and expected during this kind of growth ramp in the business.

Fair enough. Nav or Dan, would you care to comment on -- Japan we have been hearing there is a near-term recovery going on in the economy. I know you have a fair amount of exposure to both Yahoo, broadband and (indiscernible) in the ProSLIC side. What kind of plans are you seeing going into October?

Actually, our exposure in the ProSLIC segment to Japan has been diminished significantly over the last year or so. We have brought on a significant number of new design wins that have gone into production on the ProSLIC side that are just broadbase voiceover IP and voiceover broadband customers. So our dependence on that segment is not nearly what it used to be. In general, a business is -- we would characterize it as steady from Japan, and would not characterize it as any major uptick.

Last question. On headcount, you were planning to be in 420 to 430 people range ex-Cygnal by year end and from what I collect from your comments John that is still on track. Is that right?

Yes, more or less that is on track, yes.

And majority of headcount will be added on the R&D side?

We always have open requisitions for R&D people, that is correct; however we are hiring in balance of sales marketing operations. We are hiring a full team.

Interesting to note Kalpesh is with the emphasis on new product our R&D, the headcount for design engineers yesterday have grown 32 percent. So we're on track to what we talk on earlier calls on what was our projected growth for design engineers.

Are we on track to have a business model of 25 percent operating margin even with the new acquisition?

That is certainly our goal. Yes.

Thank you and good luck.

Mark Grossman of Needham & Company.

Great. Thank you. In the DAA market, approximately what part of the market now would you say is still discreet components and over time how long do you think it is going to take for that part of market to basically go away?

We still think that roughly 40 to 45 percent of the total modem market is still discreet components, your transformer type DAAs. Our hope is that overtime that will convert to the silicon based DAAs. The market overall continues to grow just because PC units continue to grow, so we're not projecting that that 40 percent goes to zero anytime soon. We think it is going to be a gradual process over the next several years. But we believe there's plenty of growth opportunities for us as we penetrate new customers, the units grow and our next generation higher priced DAA gains more traction.

Got it. In the modem part of the business, what percentage of the sales right now would you say are low speed modems and can you talk about the shift to higher speeds and how the DSPs would change under that scenario?

I don't have the numbers in front of me. Our expectation is still that the majority of our revenues in the ISOmodem space are still at the 2400 bits per second. Clearly the higher speed modems are getting an awful lot of new design win activity, and we expect that to be good growth drivers, but we can update you on those numbers later.

Last one. In wireless, if I remember, last quarter you mentioned that about 40 percent of your wins were in production. Since then I am assuming some of those have gone into production but you've also got more design wins. What do you think the percentage is now?

Again the number that we were tracking were the number of customers that had designed in our Aero Transceiver and how many of those customers have actually gone into production and the number we're stating now is that 22 customers have gone into production. The total number of customers is in the 25 range, maybe a little higher than that. The majority of those design wins we still believe are not in production yet.

That is just because as a customer designs in our product, that is usually not across the board. At a particular customer, there are several handset models that work. We start off with one or two models. As the customer gains experience with it, with our product, and likes the performance in the manufacture, we tend to get more and more percentage of that customer's business as we get new design wins. That process is just starting with -- the second phase of that is just starting now with many, many customers.

Okay, great. Thank you.

Arnab Chanda, you may ask your question.

Thank you. Very impressive performance, guys. A couple of questions if I could. First of all, if you could talk a little bit more about your wireless strategy. You obviously have done a great job with your Aero product. What are you doing with the other pieces of Silicon there or is there a play there at all? If you could also update a little bit on what the details of where you are with ramps and some of the other ODMs and OEMs you've talked about. We've obviously have heard a lot about Samsung, but a little bit more detail on some of the others would be great and I have a couple of follow-ups.

Let me take the second part of your question first. Samsung represented about 22 percent of our total business and wireless was about 52 percent of our total business. So, roughly the remaining portion of our non-Samsung business is really about 50 percent larger than Samsung. So, that is made up of customers that are all less than 10 percent of revenue. So, it is pretty broad but in total it is quite a bit larger than Samsung is.

The growth vectors that we have for this business are driven really by several factors. One of them is that the overall market is growing. The overall GSM handset market is growing and we're going to participate in that. The second piece is that our particular customers that we have designed in with are growing their market share at a faster rate. Samsung is just one example, but we believe an awful lot of our other OEMs and ODM customers are also gaining share.

Thirdly, it us gaining share at those customers. We typically start off, as I mentioned earlier, with one or two models, but overtime we have been able to get a large percentage of a particular customer's business, and we expect that trend to continue. So those three factors we think are going to drive significant growth for our existing products. Beyond that, we have a strategy to add dollar content in mobile phones. We are not going to be very specific about what that means, but that is our intention.

Thank you. Just one last question. If you look at big picture, your revenue growth potential, you describe the margin differences between your mobile business and your broadbase mixed-signal product business, do you anticipate a difference in their revenue growth potential? If that is, if you could share that that would be great?

Long-term, we really see fantastic growth potential in both areas, in our broadbase mixed-signal and in our wireless area. It is really -- we are not able to say that one will really outgrow the other. Obviously, from time to time you will have fluctuations where were one type of business gets some rapid adoption. But overall we are very enthusiastic about both businesses.

Thank you very much.

Jeremy Bunting of Thomas Weisel Partners.

In the past we have talked about the transition from the (indiscernible) product to Aero within handsets. What is your time frame and expectations for transition to Aero I? And what is the difference in ASP between Aero and Aero I?

A lot of the Aero I design wins that we had, they are new designs. There is a new -- phones is not a transition from one to the other. It is that customers that have selected the Aero for reasons of space or simplicity. The other strong reason for the use of Aero I Plus is the elimination of the TCXO and use of a simple low-cost crystal. So that has attracted customers and they are deploying that in some new handsets. So, I don't think that in 2004 we're going to see a lot of transition. We are going to see the growth of Aero I and the continuation of the Aero business for a while.

Thank you. One other question please. You were able it seems to buck seasonal trends in Q1 of this year because you had such growth within new customers and new platforms, particularly the Aero side of things. Notebook PCs and handsets are notoriously seasonal markets, and although I wouldn't expect you to give guidance for Q1, do you have a sense that you would be able buck the seasonal trends again through ramps in new products and ramps of new early-ins?

It is very early to tell, Jeremy. We have just started a quarter, we're very focused on Q4 right now. Hopefully we will be able to give you clarity in Q1.

I have one other one as well if I may. I noticed last week that you had the purchase of some PCTEL PANS (ph). Could you just highlight? I expect that is in the DAA space, but could you talk about that and how that may impact business prospects of the PCTEL line now (indiscernible)?

This was -- we're not at liberty to disclose the financial terms of the agreement, but these are patents in the areas of modems. This is something that complements very well what we already have, and was part of the expansion of the prior agreement, licensing agreement we had on the modems side with PCTEL. These patents as you saw in the press release, they are numerous, and they are right in our space and it is part of our strategy to continue building internally and through high precision of IP larger portfolio.

Okay. Thanks very much.

(OPERATOR INSTRUCTIONS). Karl Motey of Wachovia Securities.

Thanks. Congratulations guys. A couple of follow-ups. First of all on the R&D. Since the dollar increase is relatively significant in Q4, how should we look at that given that you are kind of beyond Q4 given that you have a slew of additional new products coming out? Should we look at it as this is the new base of R&D dollar spending per quarter or should that go back down to a kind of more normalized level in Q1.

We certainly have given the guidance for approximately 16 percent of R&D here in Q4. We've not really given any guidance out in 2004 in terms of what R&D would be. But we will certainly -- as a fabless semiconductor company, we must continue to invest in R&D and we have our overall operating income model around 25 percent, plus or minus two or three percentage points. So clearly we will be committed to a healthy R&D commitment during 2004.

Okay. Great. One other question on the OEM customer and the ODM customers that you mentioned in your prepared remarks. If you were to compare the new OEM relationship, if you were to compare that to kind of a similar stage as you had when you were -- when you started to ship to Samsung, how would this compare in terms of the number of SKU's that you are in, percentage of overall handsets of this particular OEM? Any additional detail would be very helpful.

I don't believe we highlighted any one particular OEM in handsets on this particular call. It was just a general comment regarding other handset customers besides Samsung. But I believe it is safe to say that any new relationship we establish with any new handset customers starts up quite similar to the way Samsung's did, in the fact that Samsung's first adoption of Aero was in one or two models.

They got some experience with that product in production in manufacture. They liked the way it performed, they liked the manufacturing yields of those phones. They liked our support, and as a result they gave us more design wins in virtually across their productline. We expect -- our goal is to have that similar type of performance repeat itself at multiple other customers. We certainly started seeing it at other customers that have now had more experience with it and our hope is to repeat that again.

Great. Thank you.

Brian Mobile of Deutsche Bank.

What percentage of your revenues in terms of your handset business can you equate to the ODMs? Regional (technical difficulty) and also any idea what China was as a percent of revenues?

We have not broken down our revenues by ODMs versus OEMs. We believe it is pretty well-balanced. Also we believe China, there is no heavy concentration of our transceivers that end up in China. China is significant but we don't believe it is by any means a majority.

Asking the question Karl asked earlier a little different way. Do you expect any other ten percent customers in Q4 besides Samsung in handsets?

No we do not.

Next year?

We have not given any guidance for next year. But I will say overall, our goal is to generally diversify our customer base as a company and not have any 10 percent customers for the company overall. That is our goal. We now have only one. For the last four quarters we have only had one customer over 10 percent.

That's good. In terms of Edge, and you are getting an increasing level of interest indicated to us in Edge in talking to European operators. (indiscernible) as you know, is migrating now. They're in the process of upgrading the network they had, to plan on launching Edge in the nearer term. Should you see a pull-in in Edge launches from players like (indiscernible) telecom and others? So they are starting to launch Edge networks next year in Europe. You mentioned earlier you thought Edge phones would be ramping more in the late '05, '06 timeframe. Could you see pulling that in to the second half of next year?

You know there have been a lot of talk about Edge and when it's going to happen and based on the conversations we're having with a lot of people in the marketplace, this is our best estimate right now. Obviously, we're pressing forward with the development of 2E as I say in my remarks, we're planning to sample in '04. We have not indicated exact date in '04 but we're pressing forward to have a full symmetrical Edge transceiver in 2004.

So that is both transit and receive?

Correct.

Then GPRS, you were talking about that earlier. Can you give us an idea of what the cost benefit is of that architecture?

It simplifies the baseband because there is a lot of redundancy in today's systems and the simplified baseband takes some real estate out of the baseband and the converters and also is the next step in this best of breed strategy because once GPRS (ph) becomes more pervasive on the basement side, people will be able to move -- the hardware would be kind of understanding that will enable people to move among different hardware solutions.

So, we have taken the initiative, we are members of that small consortia, and we think that will have an impact. Are we going to see baseband with GPRS in the next few months? Probably not. Probably it is in late '04 or '05 our estimate. But, we want to be prepared. We want to be the first one out because we think the benefits on cost savings on the basement side are significant.

Okay guys. Thank you.

Max Schuetz of Credit Suisse First Boston.

Thanks. I had a question about what leadtimes were looking like for your Aero products?

We continue to quote our customers 12 weeks leadtime and obviously that varies under different numbers of the family of Aero, MCN (ph) versus the Aero -- Aero I versus Aero.

How about if their own demand gets upsided? How fast can they get a rush order back from you?

I don't think I want to quote an exact number but if you look at our results for Q3 I think we're very good at responding very quickly to some upsurge in demand.

On the -- you talked a little bit about getting some content on XM Radio and was curious what your content per box or component pricing there looked like?

Right now what we participate in the radio, almost across all of the receivers out there it is with our synthesizer. And that is close to a $2.00 solution for radio.

Would that be at sort of the 60 percent margin levels you see on your mixed-signal business or is that closer to the handset gross margin?

No, it is closer to the broadbase mixed-signal market.

Fantastic. Great quarter. Thanks a lot.

At this time there are no further questions.

Thank you for participating in today's call. We look forward to our next conference call in January. This now concludes today's call.