Silicon Laboratories Inc (SLAB) 2008 Q4 法說會逐字稿

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

At this time all participants are in a listen-only mode. After the presentation we will conduct a question and answer session. (Operator Instructions) This conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the meeting over to Ms. Shannon Pleasant. Ma'am, you may begin.

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

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. Some of you may have noticed there was a typo in the cost of revenue line and our consolidated table. That is being corrected; the number should be 39252. You'll see our correction to that release shortly. 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 (866) 516-0673.

I am 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 Litigation Reform Act of 1995. Our comments and presentation 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 day of this conference call. This information will likely change over time.

By discussing our current perception of our market and our future performance of Silicon Laboratories and our products with you 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 material adverse effect on our business, operating results, and financial condition. We encourage you to review our SEC filings, including the Form 10-K that we anticipate will be filed mid-February 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 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 core ongoing operations.

I would now like to turn the call over to Silicon Laboratories Chief Executive Officer, Necip Sayiner.

Good morning, everyone.

Before we cover the financial results for the quarter, I would like to review our annual performance against the goals we set this time last year. You will recall that our goals were all firmly rooted in gaining market share in both the near term and over the longer term horizon. For the near term we believed we would deliver 15% or greater annual revenue growth. 2008 revenue increased by more than 20%, to $416 million in a semiconductor market that declined over the same period. Every one of our major product lines posted double-digit growth year-over-year in spite of the difficult environment in the second half. We expanded share in our target markets and with existing customers. We grew share in handsets and consumer audio with total units shipped growing by 60%. We grew our share in MCUs and timing with the number of customers increasing to about 14,000.

We picked up additional business, in fact, for multi-function printers. And our acquisition of Integration Associates was a strategic step further strengthening our emerging businesses in power and short-range wireless, also which started generating meaningful revenue in 2008. For the longer term horizon, we introduced a record number of new products in 2008 to propel future growth. We added new vectors in low-power MCUs, short-range wireless, power, video, consumer audio, and mid to low-end clocks and oscillators. We also committed to deliver growth and execute on key programs without compromising our profitability. And indeed, we delivered full-year non-GAAP operating income of 24%, and 45% growth in earnings per share.

Finally, we have always maintained that we make decisions based on our long-term strategic goal to optimize shareholder value. To that end, we increased R&D investment to fund future growth while managing SG&A expense to a lower percent of revenue by over 300 basis points from the prior year. Operating cash flow for the business has been stellar, and we returned $280 million to our shareholders through our share repurchase program during the year while driving non-GAAP EPS to a record high. We get asked by investors how we continue to outperform our peers, and given the current environment the question is particularly significant. We have a more diverse product portfolio and a better design win position with our customers than at any other time in our history, which is partially offsetting current end user demand weakness.

But as we will discuss in our remarks today, our business, too, is being impacted by macro economic factors out of our control. Revenue declined by 12.5% sequentially in the fourth quarter, and we currently are projecting a sequential decline of 20% to 25% for the first quarter. In the near term, in order to enable continuity of our development programs and not compromise hard earned market share momentum in our business, we have embarked on a number of cost containment actions that we will describe to preserve a solid cash flow during this downturn.

Our view is that inventory in the channel by and large has become leaner in the last few months, and we will start seeing demand for our product commensurate with true end user demand in Q2. When demand stabilizes, we believe an inventory replenishment cycle will follow, driving improvement in the second half of the year. We will measure our success in 2009 based on our ability to improve our competitive position, gain share, increase our footprint in customer applications, and grow our emerging product line in short-range wireless, power, and video.

We'll talk more about these product lines after Bill reviews our financial results. Bill.

We had an excellent year, executing well and further fortifying what was already a strong business. In Q4, revenue was 99.3 million, bringing year-end revenue to $415.6 million, a 23% increase over the prior year. Our fourth quarter result was slightly below our expectations, but due to aggressive expense management during the quarter, we exceeded earnings guidance. Let me first cover the GAAP results. These results include approximately $10 million in noncash stock compensation charges and 2.6 million in other one-time charges. Fourth quarter GAAP gross margin decreased as expected to 60.5% of revenue. This included an $800,000 charge related to the fair value mark-up of inventory from the acquisition of Integration Associates. We do not expect any acquisition related charges to gross margin to continue in Q1.

R&D investment for the period was 27.4 million. SG&A totaled 25.6 million. Other income, principally interest income on invested cash, was just over $1 million. GAAP earnings per share, therefore, was $0.14. Fully diluted shares outstanding totaled 45.6 million shares, down by over 10 million shares from one year ago. Turning to our non-GAAP results, on revenue of 99.3 million, non-GAAP gross margin was 61.8%, the high end of our target range. This figure also reflects a full quarter of consolidated results with Integration Associates. This performance, particularly given demand weakness at the end of the quarter, demonstrates the value of our outsourced manufacturing model. Gross margin was a highlight throughout 2008, completing the full year at 62.4%.

Given our relatively low level of fixed manufacturing overhead, we expect to be able to sustain margins within our target range of 60% to 62%, even with the depressed revenue expectations we have for the first quarter of 2009. We moved quickly during the quarter to contain operating expenses, and in a matter of weeks, we're able to reduce our run rate by more than 6%, compared to our original fourth quarter forecast. R&D investment increased only slightly, to 23.0 million. And SG&A expense decreased significantly to 18.5 million, due to measures reducing discretionary spending. We realized these reductions in the quarter despite having a full three months of expenses related to the IA acquisition. The cost containment actions that will impact 2009 include the closure of one design center, elimination of executive's salary increases for 2009, and a reduction in bonus and variable compensation.

Our annual salary increase for employees has been suspended. We have scaled back our marketing programs, eliminated numerous contract employee positions, and halted nearly all discretionary spending. In effect, we have attempted to squeeze every dollar out of expenses, short of pay cuts, shutdowns, or substantial layoffs. Given the strength of our business model and balance sheet, we are ensuring future revenue by maintaining a healthy investment in R&D. Therefore, our forecast for first quarter is that operating expenses will be flat with or below the reduced levels we achieved in fourth quarter. However, we are prepared to take further action if we determine that demand weakness is going to persist well beyond our current expectations. Operating income for the fourth quarter was excellent. The healthy gross margin and strong cost controls produced operating income of 20.1%, or $20 million. Full-year operating income of 24% was nearly at model and totaled 98.6 million.

Other income in the quarter was $1 million and is expected to decrease in Q1. We had a non-GAAP income tax rate in the quarter of 20.5% and 14% for the full year. We expect the tax rate to be approximately 20% throughout 2009. Net income, therefore, was $16.7 million, or 16.8% of revenue for the quarter, and 92.6 million or 22.3% of revenue for the full year. The Q4 earnings per share was $0.37. Moving on to the balance sheet, accounts receivable decreased significantly to 36.1 million, or about 33 days outstanding. This is well below our model and reflects the strong start we had in the period. Thus, the quarter was heavily front end loaded, which is the principal reason behind the low DSO.

Our customers and distributors have been paying promptly, and we have not had any bad debt or collection issues to date. Our inventory levels contracted meaningfully in the fourth quarter. Inventory decreased by $6 million to 28.3 million, or 5.4 turns, much like our response to expense control, our operations team reacted quickly to the decline in demand. This level of decrease in inventory in the face of a surprising drop in revenue, is exceptional. Distribution inventory also decreased substantially by 27% sequentially and ended at 39 days of supply. We do not see a buildup in the channel. By the end of the quarter, lead times had shortened, and we are seeing an increasing number of just-in-time orders as customers try to manage their own inventory levels. This contraction of inventory in the supply chain is one reason we believe improvement in the second half of 2009 is likely.

Last quarter, with 13 million remaining in our previous program, our board of directors authorized an additional program $100 million for share repurchase. In the fourth quarter, we purchased 38 million, or 1.7 million shares. We have $75 million available to us in 2009. We intend to remain selective purchasers of shares as we anticipate continued strong positive cash flow in spite of the current economic downturn. This certainly occurred in the fourth quarter as we ended the year with a cash balance of 325 million, a sequential decline of only $11 million. While very concerned about the current macro economic environment, we are benefiting from conservative financial management, strong product cycles, and a proven business model. We will continue to monitor the health of our customers and their end markets and respond accordingly to best enable us to weather the current economic storm.

Necip, I will now turn the discussion back over to you.

Thanks, Bill.

Starting with RF, which includes our broadcast audio, video, and short-range wireless products; the business was down about 20% sequentially in Q4. This was primarily due to weakness from non handset customers, P&Ds in particular. Handset revenue also declined but performed relatively better, and we ended the quarter with about 65% of our broadcast audio product revenue from handsets. Despite the sequential decline in Q4, for the year RF revenue grew by greater than 35%, exceeding our increased target. We grew meaningfully faster than the handset SAM for audio tuners, maintaining our strong position despite the presence of Comba solutions. Large customers continued to adopt discrete solutions to benefit from smaller form factors and lower costs as well as the flexibility and performance advantages our devices offer.

We also do well in the low-end handset market where where Bluetooth is not a required feature. Design activity at our customers is high, and we added another 100 design wins across the portfolio during the quarter. In addition to our continued traction with handset customers, we secured a number of strategic wins for the AM/FM and FM transceiver products. They included Tier-1 docking station wins with six of the major brands, and wins for our high-value weather band receiver at three radio manufactures. In Q1 we expect seasonal softness, weak consumer demand and P&D inventory to impact the business driving a similar sequential decline to what we experienced in Q4.

However, strength at several key customers and a broadening customer base for CE devices gives us confidence in the long-term prospects for the business. In video, we secured a significant design win with a Tier-1 TV maker for our demodulator for their entire line of European flat-panel TVs. This will not only result in new revenue in 2009, but validate our video technology and pave the way for further penetration of other key customer accounts. I'm also very pleased to report that we've been executing well on our video road map. Our CMOS hybrid TV tuner under development addresses worldwide analog and digital standards meeting very stringent performance requirements and the cost points desired by the customer base.

We demonstrated our solution at CES and our now sampling it to all the customers. The early measurements on the part give us confidence that we will, in fact, be the first supplier to deliver the benefits of an integrated CMOS tuner to TV makers with no sacrifice to the high levels of performance required. We believe the TV tuner solution will be a major growth driver in 2010 and beyond. In short range wireless, revenue was up sequentially in Q4. We secured a number of new design wins among market share leaders in set top boxes, smart energy, security, and garage door openers. We have just broken the surface from a share standpoint and have significant runway in this approximately $300 million market. In total, we expect our RF business to be flat to down in 2009. This is due to the impact of macro economic weakness on the audio business, offset to some degree by new product cycles and share increases in video and short-range wireless.

Our Access business, which includes our voice and embedded modem products grew greater than 10% year-over-year in 2008, following Access of our expectations. Access revenue was down single digits sequentially in Q4 due to a decline in our voice business among our residential gateway and PON terminal customers. Embedded modem revenue was flat sequentially. Fax modem shipments into multi-function printers declined driven by weakness in the overall PC eco-system, but set-top box demand held in Q4. The Access business is expected to experience a significant decline in Q1 due to seasonal weakness, set-top box inventory, and soft demand, resulting in what we believe will be a greater than 20% decline. Despite good long-term trends in both voice over broadband and multi-function printers, we believe the Access business will likely be down year-over-year in 2009 due to macro economic conditions.

We believe we can capitalize on weak competitors, to achieve market share gains and outperform versus our peers over the course of the year. Our broad based business, which includes our MCU, timing, and power products declined 9% sequentially in the fourth quarter ending 2008, up by close to 40% versus last year. Timing was the biggest success story, growing by greater than 70% over 2007. The series of significant product announcements we began last year continued through the fourth quarter as we announced new any-rate clock generators and buffers, targeted at the lower end of the timing market, and a new synchronous ethernet clock for carrier ethernet line cards.

We can now address $800 million of the timing tent. Our customer list includes all of the major telecom providers, and we regularly secure design wins with greater than $100 of timing content per line card. Power revenue became meaningful by year end, representing about 2% of 2008 total revenue. We have made progress with our power over ethernet solutions at the market share leader in ethernet switching. We also have Tier-1 customer interest in our AC to DC converters, and are beginning to enjoy adoption of our isolator technology by several large customers. The MCU business, which was on track to hit our 30% plus growth target through Q3, experienced a meaningful sequential decline in Q4 as overall demand weakness across the board slowed the revenue growth for the year.

MCU revenue declined sequentially due to both reduced demand and contraction in inventory throughout the supply chain. Design win momentum was healthy at about 225 wins and about 3,400 development kit share. New products are opening doors in brand-new markets as we hoped. Our low-power products in particular represent a strong opportunity for us and delivered first revenue in Q4. We are expecting a production ramp in Q1 with new customers in energy meters and wireless electronic labels. Design win activity in meter reading, set-top boxes, portable medical devices and point-of-sale terminals also look promising for 2009.

We're expecting to make significant progress on share gains in 2009 in our broad based business and currently anticipate it will be up year-over-year as we benefit from a number of new product cycles across MCUs, timing, and power. Looking to the first quarter, we're expecting a 20% to 25% sequential decline in revenue driven by seasonality, some pockets of inventory, and overall demand weakness. We're currently expecting to maintain our gross margin within our target range of 60% to 62%. We anticipate our operating expenses will be flat to down sequentially. On a GAAP basis, we're projecting a loss of $0.06 to $0.10, and on a non-GAAP basis, excluding stock compensation expense, we expect earnings of $0.10 to $0.14.

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

Thank you, Necip. We'll now open the call for question and answer session. So that we can accommodate questions from as many people as possible before the market opens, please limit your questions to one with 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)

And one moment please for the first question. Our first question comes from Tore Svanberg with Thomas Weisel Partners.

Yes, thank you, and good morning. First of all, could you talk a little bit about current dynamics. I think you mentioned you expect some stabilization here coming up in Q2. But basically what you have seen so far this quarter, have you seen maybe a pickup in orders?

Hi, Tore. The short-term indicators on the book to bill has shown some Improvement over the last few weeks. So we did see some strengthening in orders in the latter part of January. And as I mentioned, we do see significant contraction in inventory in the supply chain which we think will reverse once the demand shows signs of stability and improvement.

Okay, very good. And on the Access business, which you expect to be down year-over-year in '09. How material a decline are we looking at here? And is it primarily because of the inventory correction set-top boxes in Q 1, or is it more beyond that?

Well, I think the year-over-year comparisons is tough for Access business since 2008 was a stellar year. I think it's primarily because of the weakness that we're going to see primarily in the first half due to macro economic conditions. It what exacerbates this to some degree is some inventory with set-top box customers. In particular, our customers serving DirecTV are going through some product transition. And going through that transition, they have built up some excess inventory, which will take a quarter or slightly more to bleed.

Great. Then just finally a question on the balance sheet. Obviously you did a great job to lower inventories in Q4. How should we model inventories here in the March quarter?

We are continuing,Tore, to be very aggressive in our inventory management. So I would suggest for the March quarter to expect inventories to be flat or even down sequentially again.

Great, thank you very much.

Thank you. The next question comes from Adam Benjamin with Jefferies.

Yes, guys. I'm curious to talk a little bit more detailed about the broadcast business. If you look at that business, going forward, how do you expect your mix to shake out as you exit 2009 with some of the video business coming into the mix as well.

Well let me start with audio. As I mentioned in my remarks, we're continuing to hold our market share with handset customers, and expanding our share with consumer audio customers as we broaden the customer base. So our expectations on the audio business is clearly driven significantly by end user demand profile. In video, we are going to see pure incremental revenue from our demodulators. So I would suggest that we would see incremental revenue in the range of single-digit millions of dollars this year from that product line. And a similar story on short-range wireless, again adding incrementally to our top line for 2009. And we believe those increments will partially offset the decline that we expect to see in audio due to weak end user demand.

And is that weakened audio demand is that more focused on the handset side or the portable side?

Well as I mentioned, we exited 2008 with 65% of our revenue coming from handsets in the audio segment. This exit rate is significantly higher than the exit rate of 4Q '07 both in terms of percentage but also in terms of dollars. So actually we've seen growth in revenue and handsets year-over-year in 4Q in spite of the industry being down measurably. Currently, we see continuing inventory issues with P&D customers. So I expect that segment will be weak in the first half of the year. And on the consumer side, I think it's a fact that the end user demand globally appears to be weak. So I don't have a projection for you in terms of the fraction of handset revenues from audio as we exit 2009. But I know that we can hang on to our market share with the top handset customers and grow it with the consumer audio base.

Great. Just one more follow-up on the video side. I have heard some pretty good things about your traction there, you indicated the Tier-1 TV win in Europe. As you look at that business out to 2010, can that be in the magnitude of 50 million total?

Well it's too far out to set a target publicly yet. Obviously, we have our aspirations, especially as we add the tuner to our product portfolio. But as I indicated in past calls, video is going to be one of those legs under the broadcast business to continue its growth of 15% to 20% over the longer term horizon.

Okay, great. Thanks, guys.

Thank you.

The next question is from Randy Abrams with Credit Suisse.

Yes, hi. Good morning. Maybe expanding on the question on the recent order pickup. Do you expect second quarter to get back to growth overall in some of your markets? And then do you see the correction lagging in parts of your business into second quarter as well?

Well if you look at that the decline that we're experiencing in the current quarter. A fraction of this is seasonal, obviously. And there is a piece of that that has to do with contraction in inventory, and the remaining is obviously weakness in overall demand. So as we look at the inventory picture, especially with our larger customers, we see that being maintained pretty tightly and improving. Therefore, the piece of the decline that is attributable to inventory contraction is likely to subside in 2Q.

There are a couple of notable exceptions to this that I mentioned. One is on the P&D space, and the other is on the set-top box space. But in general I think the inventories by our customers are being managed well. And then there are going to be some seasonal effects. So the book to bill picture I alluded to supports the fact that we're going to start seeing demand in Q2 more commensurate with true demand.

Okay. Thanks for that color. And then on the microcontroller, maybe elaborate a bit more on some of the products you are launching to offset the broader slow down. And what do you see for pickup or big contributors over next few quarters from that segment?

We started seeing first revenue in Q4 from our low-power product family. This is a product that we launched earlier in 2008, so it's satisfying to see some design wins materializing in that time frame. We have a number of design wins in that space that will start contributing in the current quarter as well. We have a long list of new products that we're developing and we'll be announcing in the low-power space throughout 2009. We also started seeing more meaningful revenues from our low-cost MCU family that we introduced 12, 18 months ago. So these will primarily be the drivers of growth for us in the MCU space.

Okay. Last question, just on the cash. Maybe talk about what the new long-term investment, 52 million, and for your plans on the cash balance. Do you expect continued buybacks, or due want to be more conservative until we get greater visibility on the end demand situation?

So we have 75 million remaining in our current authorization. We would expect to be selective purchasers of shares during the upcoming quarters. And we'll take advantage of any substantial dips in share price. But maintain a posture in our share repurchase program, but with an appropriate recognition of this economic environment.

Thank you.

(Operator Instructions) Our next question comes from Sandy Harrison with Signal Hill.

Thanks. Good morning, everyone.

Good morning.

Necip, did you a nice job sort of outlining where you think your opportunities are near term, intermediate, and longer term. I think what would help me if you could maybe prioritize. You put a lot of information out there, but just if you could kind of prioritize how you think '09 will come in by those products you outlined. And what it is you guys are expecting most. That would be helpful.

Okay. Let me start with the broad based business, which I project to be up year-over-year. Timing, arguably, is the product line with the strongest momentum in our portfolio today. We're coming off of a year with 70% growth. Many design wins that we won over the last 12, 18 months, and with the design cycles in the networking industry being on the long side. We're going to start seeing revenues from those design wins in 2009. And coupled with that are all the new product introductions that we've made in the second half of '08, where we are seeing a very high success rate with design wins.

Power is going to be an incremental revenue generator for us, both on continued traction with isolators, but also with power over ethernet devices with market leaders. So I would suggest that both timing and power would grow meaningfully in 2009, regardless of the overall market environment. MCUs at this stage, is probably too close to call. But we're comfortable in suggesting in aggregate the broad base will be up for the year. In Access, we're pointing to a declining year, but we're not pointing at all to a declining market share. To the contrary, we think that this type of environment will enable us to gain some market share from competitors who are not in the best financial health in that space. And finally, on the RF side. I think video and short-range wireless are going to be net increments for us in the year with very good prospects. And we'll continue to gain share in audio with our consumer audio customer base.

All right, that's helpful. And as you have kind of laid that out, and as we try to fill in the holes of the dollars, what are you thinking internally as to how you would like to see the business year-over-year versus what would be sort of a disappointment? You did a - - you kind of outlined that last year for us at the 15%, then delivered good results for the year with the tough second half.

Yes. This year I'm not able to provide targets for the product lines, for obvious reasons. Visibility is pretty poor, even when we're talking about the first quarter, first half of the year, let alone full year. But I'm pretty confident in the fact that we're going to continue to register market share gains. And some improvement in demand that we expect for the second half, but more importantly, with product cycles that we have in all these product lines, we're looking to a measurably improved second half for our revenues.

And then finally, Bill, a quick one for you. When you look at your balance sheet and the cash, and this is a question asked on a lot of calls. At what point does some of the valuations out there, and not only some of the publicly traded companies, but even some of the private companies - - become an attractive point at which point you all get back into the market again?

Well, Sandy, I think the valuations are attractive right now. We resisted being in the market during the second half of last year as we were focused on the integration of our most recent acquisition. And we don't have any specific target that we could announce to you today or a transaction that we would expect to close imminently. But we will remain actively looking at M&A opportunities throughout 2009, and I would not be surprised if we weren't in the market before the year is out.

Got you. Thanks for taking my questions, everyone.

Thanks, Sandy.

Thank you. The next question comes from Cody Acree with Stifel Nicolaus. Hey, guys.

Following up on Sandy's question. The broad based business, you had said MCUs would likely have declined. But do you expect growth in timing and power to offset kind of what you are seeing at least today in the MCU business?

Cody, this is a question for 2009?

Yes, it is.

Well - - MCU business grew in '08, in mid to high teens. So clearly we're continuing to gain share, in a declining market. I expect those market share gains to continue into 2009. I think it's too close to call for us right now, whether the MCU product line will be able to grow or not, for the full year over 2008. But with the confidence that we have and the visibility that we have on timing and power, we're comfortable calling the overall aggregate broad base up.

All right, very good. And then just on an operating basis, gross and operating margins. Obviously we're taking a conservative tact now. But as we look into the second half, shipping back toward more normal consumption levels, what are you expecting for gross and operating margin trends? And as far as spending, starting to get back to maybe some level of investment?

So we are currently expecting to sustain gross margins in our historical target range of 60% to 62%. And we'll see slight improvement in gross margins as volumes return to more normal levels. We will continue to be very tight on operating expenses and watch the market unfold during 2009. As I indicated in the formal remarks, we've taken about every action that we can identify to cut discretionary spending in the short run, and we will sustain those actions until we see demand improve. Operating income, therefore, is going to come down in the first half of the year from the levels that we were running during 2008. But we would hope to return back toward our model performance when we see revenues recover.

How long before we get into, as we're progressing, say theoretically, best-case scenario we're into a more shipping to consumption level in the second half. How long into that recovery before you feel comfortable that maybe it is time to start reinvesting and spending a bit more on R&D and getting money back to your employees?

I think the key there is going to be our outlook for 2010. So - - if we get into the second half of the year, we're beginning to experience a resumption in demand, and we can start to expect double-digit growth for 2010, it will be time to take those steps.

Okay, great. Thanks, guys.

Thank you. Our final question comes from Craig Berger with FBR Capital Markets.

Hi, guys. Thanks for taking my questions. Can you give us some insight into - - you talked a little bit about new Tier-1 or more Tier-1 FM tuner wins in the handsets space. What type of magnitude are we talking about? How much of that business is new? What type of contribution?

Well the new wins that I talked about are in the consumer audio space. These are some major brands for docking stations around the iPod eco-system as well as other MP3 players. We also have very strong interest from a number of Japanese customers for our AM/FM solutions for end of '09 and early '10 models that we're engaged with. I would say we're continuing to expand the customer base in the AM/FM space, and that is really taking place globally with some of the Tier-1 names in Asia, Japan, and states.

How should we be thinking about the impact of the combo chips on your broadcast business over time?

Well I think we do very well in the low end of the handset market, which has shown significant unit growth in 2008, where those phones really can't afford and don't need the Bluetooth connectivity. So these phones will continue to be an addressable market for stand-alone solutions, and our cost and performance do pretty well. Even in the slightly higher end of the market, we continue to see traction with our higher value parts embedded antenna, FM tuners in particular doing well, because of the footprint, because of the performance that we are able to provide. So my expectation is that over the next 12 months, we're going to be able to defend our market share with top OEMs.

Do those new products allow to you keep your FM or your broadcast ASPs flattish?

Well we continue to have a very aggressive cost reduction product road map, Craig. And we're continuing to be able to address the cost reduction requirements of the customer base and maintain our margins, because of that road map. As well as provide higher value product so we can maintain our blended ASPs relatively flat, and that's a strategy that we're going to continue to execute to.

Two last things. One, can you comment on any potential benefits from better wafer pricing?

- -There are obviously opportunities. I think foundries in general have concluded that there is very little elasticity in the end user demand due to price. But we have obviously some angles that we use with our suppliers getting some price concessions in return for higher volumes that we can provide to them.

And then just lastly, how big is your legacy DAA business at this time?

Our Access business, if that's what you are referring to, is about 37% of our revenues for 2008. That's consisting of embedded modems and the voice business. If you are asking about the mature business, which - - has the PC modems in it and ADSL content, that's now in single-digit percentages.

Thank you.

All right, thank you very much for joining us this morning. This now concludes today's call.

And thank you for participating on the conference. You may disconnect your lines.