Silicon Laboratories Inc (SLAB) 2008 Q2 法說會逐字稿

Good morning. And welcome to the Silicon Laboratories IR earnings conference call.

(OPERATOR INSTRUCTIONS) After the presentation, we will conduct a question and answer session. I would like to inform participants that today's call is being recorded. If you have any objections, you may disconnect at this time.

I would also like to turn the call over to your conference host this morning, Miss Shannon Pleasant. Miss Pleasant, you may begin.

Thank you. And good morning. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the Company's quarterly financial results.

The financial press release, reconciliation of GAAP to non-GAAP 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 (800) 333-1872.

I'm joined today by Necip Sayiner, President and Chief Executive Officer, Bill Bock, Chief Financial Officer, and Paul Walsh, Chief Accounting Officer. We will discuss our financial results and review our business activities for the 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 Litigations Reform Act of 1995. Our comments and presentations today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of the 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 we view today, we are 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 materially adverse effect on our business, operating results, and financial conditions.

W encourage you to review our SEC filings, including the form 10-Q that we anticipate will be filed today, that identify important factors that could cause actual results to differ materially from those contained in these forward-looking statements. Also the non-GAAP financial measurements which are discussed today are not intended to replace the presentation of Silicon Laboratories GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of ongoing operations.

I would like to turn the call over to Silicon Laboratories Chief Financial Officer, Bill Bock.

Thanks, Shannon.

Once again, we have delivered outstanding performance, despite the continued economic uncertainty in the larger marketplace. We have taken a cautious view, given the status of overall markets. But the business continues to perform well and results were materially above expectations on every measure, even exceeding the revised guidance that we offered last month. The Company delivered revenue of $104.6 million in the second quarter, representing almost a 40% increase from the same period last year.

Operating income reached near record levels, and net earnings increased more than 80% year-over-year. We are also very pleased this morning to announce the close of our acquisition of Integration Associates. Our forward-looking guidance will include a 2-month stub period in Q-3 for the consolidated company. And Q-4 will be the first full quarter of consolidated results.

The second quarter results that follow do not include any historical Integration financials. I will first cover the GAAP results. Gross margin increased to 63.l% of revenue. Operating expenses declined. Research and development investment was $23.4 million and SG&A expense was $24.5 million.

Other income, principally interest income on invested cash, was approximately $2 million. The tax rate was 27%. Fully diluted GAAP earnings per share was $0.29, more than doubling over the same period last year. Our non-GAAP adjusted financials that follow exclude $10.2 million of stock compensation expense. Non-GAAP gross margin increased sequentially to 63.5%, which is above our target range.

This was driven by ASP trends and revenue mix that were slightly favorable to our expectations, as well as product cost reductions. As I have stated before, the strength of our business model will allow us, at times, to exceed our target gross margin range as we did this quarter. However, we expect margins will return to the high end of our target range of 60 to 62%, due in part to our estimation of the near-term impact of the Integration Associates acquisition. Operating expenses were lower than expected at 36.4% of revenue.

R & D decreased sequentially to $19.4 million, due to less hiring and engineering than originally forecast, and unanticipated R & D credits in both France and Singapore. We intentionally slowed the rate of hiring and engineering as we rationalized our staffing requirements in light of the acquisition of Integration Associates. That said, we are still anticipating that R & D will increase throughout the end of the year as we continue to recruit, tape out new products and development, and incur the additional expenses connected with the acquisition. SG&A was flat sequentially, as expected, at $18.7 million.

Spending restraint, along with top flying growth, has enabled us to drive SG&A expense from 23% of revenue at this time last year, to 18% in Q-2. We expect SG&A expenses will remain flat as a percent of revenue in the second half of the year despite the additional expenses associated with the acquisition of Integration. My expectation is that we will be in a position to continue to drive these costs down as a percentage of revenue in 2009.

The strong revenue, healthy gross margin, and lower expenses resulted in an outstanding operating income result of $28.3 million, or over 27% of revenue. This is the second time in three quarters we have exceeded our operating model target. Our ability to deliver operating income at this level clearly demonstrates the profit potential of the business, particularly in fiscal periods where we over perform on the top line.

While we expect that operating margin will retreat some from this level in Q-3, we are proving the ability to meet and even exceed model performance. Other income in the period was $2 million. Our non-GAAP income tax rate was 23%. Net income, therefore, was $23.4 million, or 22.3% of revenue, driving earnings per share to $0.47, a sequential increase of more than 20%.

If you look at our earnings performance over time, even excluding the benefit of other income, we have nearly doubled our quarterly earnings per share year-over-year in every quarter since the third quarter of 2006. And we last delivered $104 million in quarterly revenue in late 2005 when we had the cellular business that we divested last year. We have already achieved the same revenue scale today, replacing the volume of the cellular business with other growth products.

We are considerably more profitable, with fewer employees, fewer outstanding shares, and an even better cash position. We hope that investors appreciate the quality of the Company's improved performance, resulting from management's commitment to building a business with a valuable combination of growth, profitability and a strong balance sheet. Turning to the balance sheet for Q-2, we continued the execution of our share repurchase plan with purchases totaling $33 million or 1 million shares. We have approximately 80 million remaining under our current authorization.

We ended the quarter with shares outstanding of 47.9 million, so we have retired more than 20% of our float since the repurchases began. Our pace of share repurchases slowed in the quarter relative to Q-1, reflecting the anticipated commitment of cash for the Integration acquisition. It is, however, our intention to continue with the share repurchase program and complete the full amount authorized by our board.

Quarter ending cash and investments totaled $450 million and continue to reflect a very strong balance sheet position with more than sufficient corporate liquidity. As expected, dramatically lower interest rates, reduced interest income in the second quarter to $2 million. Operating performance has more than made up for the decline, further improving the quality of our earnings. Receivables and inventories remain in very good shape. Accounts receivable increased in line with revenue growth to $51.7 million. Days sales outstanding was 45 days.

Inventory also increased commensurate with the growth in the business to $29.6 million. Turns remained flat at 5.3. Inventory in the channel declined by about 10%. Taking into account the increase in our inventory, balanced by the decrease in the channel, total inventories were flat in absolute dollars, while the business grew 7% sequentially. This healthy inventory picture is another indicator of the strong position of the business.

Necip Sayiner, I'm now turn the discussion over to you.

Thanks, Bill.

The significance of our stellar results in a poor economic environment, is that our business strategy can deliver top line growth well above the industry growth rate while maintaining an attractive gross margin profile. I believe as a management team we have demonstrated the ability to optimize our investments such that we can translate the growth in the business into an even higher level of quality earnings growth.

We remain committed to building upon our diversified business model and the innovative engine we possess to out perform our industry. While delivering a very good quarter, we also executed on a strategic acquisition. The close of the Integration Associates transaction is the beginning of another exciting growth story for Silicon Labs. The acquisition adds a new vector for us in short-range wireless.

We believe the Company's combined mixed-signal capability and Integration's existing products and customer engagements will jump-start growth in this key market. The acquisition also adds scale to our emerging power business, a promising mixed- signal growth area. Through the acquisition, we are also adding engineering talent, IP, and cycles of learning, enabling new developments.

We'll be sharing our progress in these two areas with you as we begin our consolidated reporting of the Company's products in future periods. Second quarter results continued our strong annual growth trajectory. In the first half of the year, revenue has grown 35%, compared to the same period last year. At this rate, we are on track to exceed our growth target for 2008. Additional revenue from Integration only improves that picture. Revenue upside in the quarter was due primarily to better than anticipated demand in our voice and modem products.

In voice, strong demand from our large customers and share gains in cable drove the increase, while embedded modems we benefited from the transition to high-def set-up boxes and share gains in fax modems. While we don't expect this run rate to hold in the third quarter, we are clearly on track to do measurably better than the flat-to-slight growth we initially forecasted for this year in these businesses. The broadcast business continue to perform well, in spite of the challenging macro environment.

We are benefiting from the competitiveness of our offerings, the diversified customer base, ramps with new customers, and our new, higher-valued product such as transmitters, AM/FM, and embedded antennae tuners. This quarter we began shipping to Nokia which when combined with new designs at Samsung, LG, and Sony Erickson, have allowed us to sustain growth in handsets. The broad-based consumer segment of our broadcast business also grew modestly, while the P & D segment declined, as expected.

For the second half, both handset and non-handset revenue are forecasted to grow. With 100 new designs due in the quarter, strong adoption of our higher value products, and some anticipated recovery among P & D customers, we are increasing our annual revenue growth target for broadcast from a range of 20 to 30%, to closer to 35%. Longer term, we are expecting the broadcast customer base will continue to expand as we enter new markets.

This quarter, we secured a radio design win for the automotive market, a strategic end market that is yet another growth area for our radio products. Turning to the MCU business, we had a record quarter in Q-2, increasing revenue by more than 15% sequentially. We shipped our 100 millionth MCU in the quarter and the cumulative number of development kits shipped surpassed 100 thousand. We are expecting the MCU business to grow sequentially again in Q-3.

We will be ramping our low voltage and automotive products in the second half of the year. And we are on track to hit our 35 to 40% year-over-year growth target in 2008. It is important to know, that second quarter MCU revenue surpassed the prior record in Q-4 '07, despite the fact that revenue from the consumer segment remains significantly below that peak. Strong demand from industrial customers and an ever broadening customer base more than made up for the weakness in the consumer segment. This illustrates the powerful combination of diversification and strong differentiation that our MCU business represents.

Another very positive aspect of the Integration Associates acquisition, is the pull through we are anticipating for our MCU product in short-range wireless applications. We have been very successful in the MCU business, even in cases where we are providing only one of many of the components required in the customer systems. As we pair our MCU's with other ASSP's, such as wireless transceivers, we'll be able to make a significant step up of dollars in content per board.

The timing business also remains healthy and is a strong source of growth for the Company. Our investments in the channel have been paying off. Timing design wins more than doubled year-over-year from Q-2. We are also planning to launch new revolutionarily timing products later this year that will expand our served market and contribute to growth. Given the outlook for the second half, we are increasing our annual growth target for timing from 50%, to 70 to 80%.

Let me also provide an update on our power products. As you know, we have both application specific and channel purpose power products. We are seeing strong promise in both areas. On the application specific side, we have developed a family of power-over Ethernet solutions, and we expect a ramp revenue for these products later in the second half.

On the general purpose side, our isolated products are steadily ramping which combined with additional products, IP and customers, we are gaining through the acquisition, will meaningfully add to our revenue base. We are anticipating that power products will be a new growth area in 2009. We have commented over the last nine months, that the global nature of our business, the positive impact of new product cycles, and the addition of new customers, should have a counter-balancing effect to the slowing U.S. economy.

We have delivered results that clearly demonstrate our ability to out perform our industry. We are closely monitoring the health of the industry and we still believe the trends for our business are positive. We expect Q-3 revenue to be up sequentially to $111 to $115 million, which includes $5 to $6 million in Integration revenue, based on approximately two months of consolidated operations. We are expecting gross margin to be at the upper end of our range of 60 to 62%.

We anticipate our R & D investment will be 21 to 22% of revenue, which incorporates the effect of the acquisition and organic growth in our development team. SG&A expense is expected to remain flat as a percent of revenue. Third quarter GAAP net income will include one-time charges relating to a write-off of in-process R & D, any impaired assets in severance or facility shut down costs and a tax impact of incorporating the acquisition into our operating structure. Not all of these charges will be finally determined until later in the quarter.

At present, our best estimate of net income per fully diluted share on a GAAP basis, inclusive of these one-time charges, is expected to be a loss of $0.09 to $0.12. Third quarter non-GAAP EPS, excluding stock comp expense and these customer acquisition related charges, is expected to be in the range of $0.40 to $0.43. This guidance effectively indicates the strength of the existing business and its offsetting effect on the near term impact of the acquisition.

We'd now like to take your questions. Shannon?

Thank you, Necip.

We will now open the call for the question and answer session. So we can accommodate questions from as many people as possible before the market opens, please limit your question to one, and one follow-up question.

Operator, please review the question and answer instructions for our call participants.

Thank you. At this time we are ready to begin the question and answer session. (OPERATOR INSTRUCTIONS) Our first question does comes from Srini Pajjuri of Merrill Lynch. You may ask your question.

Thank you. Good morning, guys.

Bill, first on the gross margin and operating expenses. Obviously, I think you are seeing some impact from the acquisition. Just wondering, will the gross margin come down further in Q-4 as you integrate the extra quarter - - extra month of integration? And then how should we think about the affects?

So, Srini, I think in gross margin, we forecast for you at the time of the acquisition that the Integration product line would impact our overall corporate margins by about one point. That still continues to be our expectation.

We are not ready to give formal guidance for fourth quarter on gross margin. But I think the level we have been indicating toward the high end of our target range of 60 to 62% feels reasonably comfortable to us at this point in time. On operating expenses, Necip provided guidance on R & D for the third quarter. We would expect that R & D would continue to grow in fourth quarter. Our objective will be to hold the line on SG&A expenses and we expect that that will be relatively flat in third quarter on a percentage basis to that, that we achieved in Q-2. And we'll try to hold absolute dollars relatively flat as we go into the fourth quarter of the year.

And then, Necip, a couple for you. On the strength that you are seeing in the voice and the modem business. Looks like the factors begin to contribute there. I am just wondering, how much of it is just in the market being healthy, versus your market share gains, and your new product ramp?

In embedded modems, we have seen very strong demand from set-up box customers in the quarter. We have very healthy share at DirecTV and all customers serving to that operator. We are definitely gaining share on the back side, and it is reflecting in our results in embedded modems.

And then my last question. On the FM business, Necip,- - given all the weakness we are seeing on the handset side, looks like - - you are still doing well. I'm just wondering as we look up to the next few quarters, what are some of the key drivers here. Basically - - new product ramps at Nokia and Samsung, or are you expecting non-handsets to come back? I'm trying to understand which one is going to drive the growth for the next few quarters? Thank you.

Certainly for the balance of the year we expect to see growth, both in handsets and in non-handsets. We are pleased to see that the fraction of new design wins at handset customers that are coming from our higher value products is increasing. One prong of our strategy with handset customers has been to move those customers to the pin compatible, higher value product such as embedded tuners or transmitters, and we are succeeding in that strategy. Our customers are seeing value in those new products, and that's certainly helping mitigate some of the ASP erosions that you would normally see. We are also seeing a broader design win attraction with consumer audio customers, particularly in Asia. Some of the design wins we have obtained with radio customers in Asia have started to ramp strongly and many others, particularly in China, are following those market leaders in designing our products in. So I expect that trend to continue, particularly on the non-handset side into 2009.

Thanks.

Craig Ellis of Citi. You may ask your question.

Thanks. Just to start, good job all around, guys. Bill, just a clarification on the gross margins you mentioned three factors that drove upside the guidance in the second quarter. Can you give us the relative magnitude of those three?

So I commented on favorable ASP trends. What this really relates to is the fact that our forecasted declines in ASP have been less than we expected, which are providing us with somewhat better margins. I think this is indicative of a competitive environment where we are enjoying the benefits of new product ramp. And we are enjoying the benefits of products that really offer unique differentiation and don't yet today have direct competition. We did have some favorable mix in the quarter. The business was very strong in our mature businesses in voice and modems, which are good margin products. And then finally, product cost productions that we have been working on for quite some time are taking effect, and contributed to the 63.5% margin result that I indicated. I would basically suggest that each of those factors are roughly equal in impact. No one of them was materially greater than any other. And we are very pleased with what was an outstanding margin result in Q-2.

Okay. That's helpful. And then, Necip, on the broadcast forecast increase for growth this year to 35%. As we think about the handset and non-handset business, is that increase driven equally by both of the sub components, or is it more one versus the other?

In the beginning of the year, Craig, we had taken a cautious outlook in our broadcast business, particularly on the handset side. Our view going into the year in terms of end user demand was relatively cautious. And if that remains the same, however, we have been able to gain share and add new customers, and move some of our customers into the higher value products I mentioned. That - - we feel better about increasing the growth target for the year. So I would say a larger portion of the upside to our original targets is coming from handsets.

Okay. That's helpful. And then last thing, this may be for both of you. As we think about Integration Associates and some of the key Integration milestones for that transaction over the next couple of quarters. What would you point to as key things that we should be looking for both operationally and on the P & L?

Well, in the last 30 days, we have met extensively with the Integration team, and developed a product line specific road maps. We have the organizational structure in place. Therefore, we are going to be hitting the ground running today on day one on many fronts.

We have a number of deliverables that we are going to execute to over the next 90 days, as we integrate the systems, as we execute on the developments that are nearing an end, and really maximize the potential of the products that we are inheriting through our sales channel. So I expect that in 90 days, when we talk with you again, much of the integration will already be behind us.

And from a financial point of view, we have talked already about the gross margin impact. I want to point out that we are really pleased that we can continue to guide you to the high end of our historic range, after combining the impact of the integration.

Secondly, from an earnings point of view, the diluted impact in the short run of this acquisition is probably on the order of $0.03 to $0.04 quarterly. In Q-3 the guidance that Necip provided of $0.40 to $0.43 is equal to, or higher than, current street consensus for the third quarter.

So we have absorbed that delusion and more than offset it in the first quarter that this acquisition takes place. We believe that will also hold true for fourth quarter estimates. Looking into next year, it's our goal to improve the financial performance of the acquired business through cost reductions in their manufacturing structure, and by ramping volume with our sales distribution channel. So we would believe that by this time next year, the business will be fully accretive to earnings and will be materially delivering to the consolidated companies results.

Thanks for the detail, guys.

Arnab Chanda of Deutsche Bank, you may ask your question.

Yes. A couple of questions. First of all, you talk about - - if you look at your performance and your broadcast business, how much of that do you think is a result of kind of the expansion as you are replacing tuners with transmitters, receivers, et cetera? And how much of that is - - unit-related. I'm just trying to figure out whether you are seeing any weakness in the end market. And you are offsetting that, or there is some other factor going on (inaudible).

Sure. First of all, we are continuing to see unit growth in handsets. We have grown our revenues and units in broadcast business that we drive from the handset segment all throughout 2007 and year to date of 2008, every quarter. So in the second quarter results we announce today, our units to handset manufacturers have increased sequentially again over the prior quarter.

So on a blended ASP basis when I look out into the second half of the year, compared to the same period last year, we see an ASB erosion I would say in the order of 10%, which is less than the ASB erosion you see in the handset segment for any particular given device. And that is due to the fact of us introducing and ramping higher value products.

And then a follow-up on your embedded modem business. Embedded modem and voice, both. What do you see are the drivers there? I think you talked about fax modems. But are those businesses starting to flatten out as we go through 2008? Or are there other drivers for growth that you haven't discussed yet?

So in voice we have seen strong demand from many of our large customers. And that's been diverse in terms of application. We have seen strength from voice attachments on DSL residential gateways in North America, Latin America and Europe. We have seen strong demands from our cable customers. We have seen upside from pawn applications. We have seen strong demand in wireless fixed terminals in Asia. So the strengthened upside has been very broad and diverse in terms of applications and regions.

We expect that the cable share gains we have enjoyed is going to continue, obviously, into the second half of this year. On the embedded modem side, as I mentioned earlier, we are continuing to enjoy the transition to high definition set-up box equipment with our higher SD, higher speed and (inaudible) modems. But the market share gain story there is really revolving around fax, as we continue to add new sockets with customers. So looking into the second half of the year, I indicated that we wouldn't necessarily hold the high run rate we have seen in the second quarter, but certainly above what we have seen in the first quarter. So net - - net I think for the full year, both of those businesses will comfortably exceed the growth targets that we've had for them.

Then one last question for, Bill, on gross margins. You obviously had two quarters where you quite easily exceeded your 60 to 62% goal. You are saying that the Integration Associates will have margin improvements in '09. Do you think that you - - you'll be able to go higher than your 60 to 62% sustainable? Or are there some other offsetting conditions by mix, or anything like that?

Arnab, that is a great question. And we'll have more to say about that as we get closer to 2009. I think we are enjoying strong performance on gross margins currently. I think my concerns about 2009 relate to the macro economic environment that we are in, energy pricing, and just costs in the supply chain. And then secondly, competitive environment and what we will see as ASP pressure when we enter 2009. So right now, we are enjoying a very strong margin performance. I don't want to suggest that we should raise expectations for next year until we are a little closer to it and have a better feel for those two primary factors.

Thanks, Bill. Thanks, Necip.

Adam Benjamin of Jefferies, you may ask your question.

Thanks, guys. Just in a clarification back to the SG&A bill, you seem to mention that you expect to keep SG&A flat as a percentage of revenue in the Q-4, as well as on a dollars basis. Should we assume that reference is roughly flat in Q-4 as well?

No. We would expect that revenue will grow into the fourth quarter. The SG&A spending will be held relatively flat. I think as a correction to my earlier comments, you will probably see some absolute dollar growth in the fourth quarter as we will have three months, rather than two, of the consolidated Company. But in general, our intention is to keep SG&A flat as an index of revenue in the next two quarters and then continue its downward trend in 2009.

Got you. That's helpful. Just on the comment about the gross margin drivers for Q-2, specifically on the ASP decline, can you comment about, or less ASP decline than you expected. Can you comment about what products specifically that you saw that?

No. I don't think we want to get into details of product specifics. I will say that, in general, we have been really pleased with what we have seen across both the broadcast product lines as well as in MCU. ASP's have been holding up perhaps better than we had originally expected.

Okay. That's helpful. And then on the power segment, Necip, you talked a lot about that. When do you foresee that becoming about 10% of revenue?

Well it's still an emerging product line for us. I think it's going to be one of those product lines that will start contributing meaningfully to our revenues in 2009. And just on that note, when I look out into 2009, at this juncture, I see our growth being driven by several product lines. In particular, I see five engines of growth for us in 2009.

We expect MCU is going to continue to grow, particularly aided by the low voltage MCU's that we introduced. Power, as you mentioned, is going to be a contributor, both due to POE products, as well as the combined product portfolio of two companies in general purpose applications. I see timing kind of coming of age in 2009, as it continues its growth trajectory and the numbers become more meaningful.

I see broadcast growing into 2009, particularly on the non-handset side as we gain further traction with consumer audio products, and short-range wireless is yet another growth engine for us into 2009. So what I would like you to take away from this, is that growth that we expect to see in 2009 will have a much broader base than from the past.

Great. That's very helpful. Just one last question on broadcast, Necip. You talked about the ASP decline being less than you thought, helped by the mix. Can you talk a little bit about the mix there, in terms of what you are seeing? You previously have kind of given some perspective. Can you help there?

Well it's very satisfying to see that we have been able to achieve the gross margins we did in Q-2 in spite of the complexion of the broadcast business favoring the handsets. So clearly, for the balance of the year, we expect to see that the blended ASP's in broadcast sequentially will remain where they are and possibly inch up, as the volume of transmitters, AM/FM, and embedded antennae units increase.

So for AM/FM and the transmit, can you give a rough percentage of where you think you finish the year of the total handset mix?

Well on the handset side, it is still going to be a large majority. On the handset side, it will be our receivers. But I can tell you qualitatively, more and more of those are going to be embedded antennae units.

Got you. That's all I have, guys. Thanks a lot.

Robert Shaw of Lehmon Brothers, you may ask your question.

Thanks a lot. Necip, one of your larger competitors in micro controllers consistently emphasizes distribution as being a key competitive advantage in terms of demand creation. Can you just elaborate a bit on your channel strategy in micro controllers?

Sure. We are very cognizant of that. As we expanded the product portfolio in the last 24 months, we have also commensurately expanded our sales channel in different geographies, particularly in the MCU area by adding distributors in those regions that are specific to micro controllers. Those distributors specifically work with our MCU products in those regions.

So our distribution channel expanded significantly over the last two years. And continues to expand as we add new reps, new (inaudible), and a variety of geographies, especially where we gain access to new customers and new applications through the new products that we introduce.

Are you using primarily regional distributors or are you also using some of the tier one?

We have both. We have both household names representing us in different geographies, but we also have distributors that are region specific.

Okay. Thanks. And Bill, just on the - - there is a number of charges this quarter that drive the disconnect between GAAP and non-GAAP income. Can you give us a feel for - - what percentage of those charges are cash related?

So we have got - - a variety of different charges that are related to this. In process R & D, a write-down of any impaired assets, severance charges for employees that are not coming over with the acquisition. We are also shutting down a facility. And then there is a tax impact of incorporating this acquisition into our operating structure. Of those, the first ones are generally non cash related and we'll have obviously cash effects of severance and facility and the tax impact will have a cash effect. On balance, all of these are one-time charges that we are very pleased to take up front. In effect, get them out of the way, and allow for better operating performance in future quarters as the acquisition is fully merged into our business.

Thank you.

Sandy Harrison of Signal Hill, you may ask your question.

Thanks, guys. Sort of under the guise of what have you done for us lately. Now with IA associates put to bed and sort of gone through the integration progress, how do you guys look forward on - - additional acquisitions? Is this something that was enough that you have got your handle on it now - - or if something else could come on - - I guess what I'm getting at is, there is a lot of opportunity out there right now. With companies and IP, and you guys are in an excellent position with the amount of cash that you have. Is this another area or is it time to take advantage of the current environment and your strength?

Well we continue to look at multiple opportunities, Sandy. Clearly, over the next 90 days or so, we are going to be focusing internally in making the integration of this acquisition successful.

But as you point out, the market conditions with our strong balance sheet allows us to - - look for businesses that fit our stringent criteria. What we wouldn't do is to compromise on the criteria we have set for any type of M&A, regardless of the valuations. But those companies, private or public,- - know that might fit our criteria have certainly become more affordable as of late.

I would add, Sandy, that we are really focused presently on successfully completing the integration of this acquisition. It's a major undertaking internally to do this right. So any deal that we would be looking at presently would have to be one that we feel we could take advantage of without sacrificing the efforts that we are putting into the current deal.

Got you. Now that you have - - now it is part of the group and you guys have had a little bit more time to get in there. Necip, could you maybe talk about some of the products that you think could come out that going forward? Or some divisions that we could look to hear from, sooner rather than later, with some of the integration of the two firms, now that they're together?

Well, we fully intend to share our progress on the two primary fronts. Those being power and short-range wireless. Over the last 30 days since the announcement of the agreement, we have had the opportunity to talk to a broader set of customers. Both Integration's current customers and our prospective customers about the short-range wireless products, and the reception we have gotten from them has been very positive.

The technology is well received by the customers, and the fact that now they are under our umbrella, makes them more comfortable to adopt those solutions. So we continue to be very optimistic about short-range wireless being a good growth driver for us next year. On the power front - - we are going through the road map alignment. This will certainly provide us additional scale and additional product in the portfolio. So we are going to be sharing our progress on that front with you as well.

Great. And then my last question. Actually, never mind. I got it answered. Thanks.

[Tori Sandburg] of Thomas Weisel Partners. You may ask your questions.

Yes. Good morning. Congratulations on the results. Two questions. First of all, I know you don't really quantify your bookings and backlog. But could you just qualitatively talk about current visibility, even near-term or long-term?

Well - - - usually, for the quarter we give guidance for - - we have pretty good visibility, I think from a backlog point of view. There is nothing in this quarter's view - - that would give us specific concern. We are obviously coming out of a very strong second quarter and many of the product lines. And the momentum that we have, particularly in the broad-based business this continues into the second half.

I think that in general, - - we have demonstrated over many years that our guidance for the quarter that we are in has proven to be pretty good. And our visibility beyond that is less so. But we think that the current quarter guidance is solid and are looking forward to growth into the fourth quarter as well.

That is very fair. Then on the power side, you mentioned a ramp in POE product sales for the second half. Is this the result of many different small designs, or do you actually have some big customers that are driving that revenue growth?

Both, Tori. On the PD side, we have a number of smaller design wins driven by applications like IP cameras. And on the power sourcing side, on the PSE side, we have a couple of design wins with a very significant customer.

Great. Thank you very much. Great results.

Thank you.

Guss Richard of Piper Jaffray. You may ask your question.

Yes. Quickly, you haven't mentioned the video broadcast products you have been working on. I was just wondering if there is any update.

Well, this is certainly part of the growth story for broadcasting in 2009. We are in the process of competing for some significant design wins with our demodulator product that we announced.

Particularly, the combo of DVB-T and DVB-C is attractive for many of our customers. We have, as you know, additional developments ongoing in that area. At this point in time I have no updates on that front. But developments are going on track.

Okay. I think that's it for me. Thanks.

At this time we show no further questions.

Great. All right, thank you very much for joining us today. This now concludes our call.