Silicon Laboratories Inc (SLAB) 2010 Q1 法說會逐字稿

Welcome, and thank you for calling the Silicon Labs first quarter earnings call. I would like to inform all parties that you are in a listen-only mode until the question-and-answer portion of today's call.

(Operator Instructions)

I would also like to inform all parties that today's call is being recorded. And if you have any objections, you may disconnect at this time. I would now like to turn today's call over to Shannon Pleasant. You may begin.

Thank you, Erin. 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. 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 888-562-2923. 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 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 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 review 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-Q that we anticipate will be this week, 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 Financial Officer, Bill Bock.

Silicon Labs delivered yet another excellent quarter. Revenue was better than expected at $126.7 million, a 51% increase over the same period last year. This significantly better than seasonal result in the first quarter was due to strong growth in our broad-based product lines. This performance is particularly impressive, considering revenue is essentially equal to a corporate record in Q4 that was driven by consumer-oriented products. We are clearly demonstrating the benefits of diversification and multiple growth drivers across various end markets and customer categories. Let me start with the current quarter GAAP results, which include approximately $10.3 million in non-cash stock compensation charges. First quarter, GAAP gross margin increased 50 basis points sequentially, to 66%. R&D investment for the first quarter was $29.9 million. SG&A decreased to $28 million. Other income, principally interest income on invested cash, was under $1 million. GAAP operating income was over 20% again in the quarter, representing the third consecutive period at this performance level. Fully diluted earnings per share was $0.44 for the first quarter, up from $0.01 the same period last year.

Turning to our non-GAAP results, revenue of $126.7 million reflects strong performance from MCU and timing products, offsetting the seasonal decline in broadcast products. This mix shift contributed to outstanding gross margin results, reaching a post-divestiture record of 66.2%. We also benefited from better than anticipated average selling prices, inventory reserve reductions, and continued improved manufacturing yields. We expect to be able to maintain this 65% to 66% margin performance in the second quarter. Operating expenses were up sequentially as anticipated to about 38% of revenue. Specifically, R&D increased to $25.8 million, or 20% of revenue, while SG&A was about flat at $22.3 million, or 18% of revenue. The drivers behind the increase included our annual raise cycle, a record quarter of new product tape-outs, and an excellent recruiting effort, setting a strong pace for bringing in new talent. We expect operating expenses to increase in Q2 primarily in R&D, which will be up about $2 million sequentially.

Part of the increase is attributable to the strong hiring trend. We anticipate, by quarter end, the head count will be up by nearly 100 people from a year ago, most of these in technical positions. There are just more opportunities to gain share and develop new products than we have been able to adequately address. The ability to secure high caliber talent at this juncture is very strategic for us, as it enables us to lever the incremental investment in marketing, sales, and design to capture more of this potential revenue. The other element of increasing R&D investment in the second quarter is the acquisition of Silicon Clocks for $22 million, that we announced today. Necip will provide more details on the strategic rationale in his commentary. SG&A is expected to remain flat or decline slightly as a percent of revenue. Operating income for the first quarter was a solid 28%. Other income in the first quarter was under $1 million and is expected to remain at this level. The tax rate was at our new lower level at 17.7%, without the benefit of the anticipated R&D tax credit. Net income increased to $29.8 million for the quarter, or 23.6% of revenue. Resulting Q1 diluted earnings per share was $0.62, well above our expectations and nearly triple the $0.22 earned in the comparable period last year.

Moving on to the balance sheet, accounts receivable were flat, ending at $56.9 million or 40 days outstanding. We have no known collection or bad debt problems. Inventory levels decreased sequentially to $27.7 million, down $3.9 million from year end. Turns for the quarter were 6.2, the highest level since 2007. Channel inventories remain flat sequentially. With the industry recovering and our vendors operating closer to capacity, we will endeavor to increase inventories in Q2 in anticipation of continued revenue momentum in the second half. We ended the quarter with $447 million in cash, due to continued healthy cash flow from operations. Share repurchases totaled about $25 million in the quarter. This is the highest level of share repurchases since 2008. There is over $100 million of authorization remaining under our current program. We expect to remain selective purchasers of shares throughout 2010. I'll now turn the call over to Necip.

Good morning. We had a strong start to 2010. We are benefiting from the channel improvement in the health of the industry and very good momentum behind our growth-based products, which were largely behind the better than seasonal performance. I'll begin with the Access business, which continues to be a steady performer for us. About 30% of revenue, Access was essentially flat for the quarter, with modems down slightly and SLICs up. We expect this trend to continue, driving modest sequential growth in Q2. SLICs benefited from strength in Voice-over DSL in Q1. Our momentum winning new sockets continued, with new design wins at about 50 per quarter. A very good number. And, this near-term strength appears to be sustainable. Our broadcast business was down about 10% sequentially in Q1, better than our expectations.

In our audio business, AM/FM nearly doubled sequentially, as the strong ramp we had been anticipating this year began for our radio receivers in boom boxes, table radios, and low-end automotive radios. This strength partially offsets the significant seasonal decline in portable media players and the better than seasonal decline in hand-sets. During the quarter, we secured another 100 design wins for our radios, about a third of which were for new hand-sets. The rest addressed a range of consumer electronics applications, from portable radios to docking stations. We expect the consumer audio business to grow sequentially in Q2, with hand-sets down slightly, resulting in modest sequential growth for the audio business overall. We expect this trend to continue for the remainder of the year. In video, with recent design wins coming to mass production, our tuners or demods are now being used in five of the top six brands worldwide. A very important accomplishment for our emerging video product line.

Mitsubishi America has also selected our Silicon tuner for their Unisen line of LED TVs for 2010. Mitsubishi is the first TV maker in production to mount our Silicon tuner directly on the main system board, bypassing the KEN module. The validation of the strong performance of our Silicon tuner is resulting in real pull from TV OEMs and ODMs to adopt Silicon tuners rapidly over the course of the next two years. They are looking at deploying the technology in two ways -- primary and secondary tuners. Primary tuners exist in every terrestrial television and they have to support both analog and digital broadcasts. We call this a hybrid tuner. Analog and digital broadcasts require companion demodulators. These can be integrated with the tuner, remain outside of the tuner as separate chips or be part of the larger system SOC. We are agnostic for the partitioning, and our solution can support any variation cost-effectively, unlike non-CMOS space tuners. The 2170 also remains the only solution to support analog and digital broadcasts in a single CMOS IC, without performance compromises versus discrete solutions.

The other opportunity in terrestrial TVs is the secondary tuner. This tuner is used for functions like PVR and picture-in-picture. These sockets had already begun to convert to Silicon tuners prior to our entry into the market due to the relaxed performance requirements versus the primary tuners. We are winning these sockets as well, and are equally well positioned against competitors targeting this opportunity. We are on track to grow our video business nicely in 2010, and more importantly, we are positioning it to ramp aggressively in 2011. We expect the overall broadcast business to be up modestly sequentially in Q2. Our growth-based business was up again in Q1, growing sequentially by more than 10%, and representing more than 30% of our total revenue. We are very bullish about the continued strength in the strategic growth area. The Timing business had another record quarter, growing by about 30% sequentially, and handily surpassing the $10 million per quarter milestone. Growth was driven by strength in networking customers and the ramp of new programs. The Timing customer base expanded at a record pace, with over 90 new customers added and strong design win momentum continued, with nearly 200 wins secured in the first quarter.

With increasing diversity of customers and applications and a growing pipeline of ramping design wins, we had very good visibility into the growth trajectory of this business for Q2 and beyond. The acquisition of Silicon Clocks that we announced today adds a strategic capability in MEMS technology to our portfolio that will immediately impact our timing road map and allow us to further expand our served market. Silicon Clocks pioneered the development of a MEMS process technology, that allows the manufacture of resonators and sensors directly on standard CMOS wafers. For clocks and oscillators, this approach enables excellent stability at a lower cost than traditional crystal-based technologies and significantly reduces foot print and power consumption. This technology will allow us to effectively target lower end, higher volume segments of the timing market. It will also be a strategic addition across our portfolio, as we expand our horizons into new areas.

Our Embedded Mixed-Signal business had a record quarter as well. Our MCUs led the group with particular strength coming from optical transceiver customers, addressing demands created by the increase in capital spending for network buildouts. Communications presented about a third of the MCU business in the quarter, with growth driven by new customer ramps, as well as continued strength from existing customers. Our USB products were also behind this strong quarter, with revenue from customers in Asia growing 25% sequentially. We also benefited from a general lift across a broad group of industrial customers, which represented the largest percentage of our Embedded Mixed- Signal revenue in Q1. MCU development kit shipments hit a record high at nearly 10,000 kits shipped, which we believe is a strong indication of broadening interest in our products. Wireless applications represented a significant component of this new run rate. For example, applications in home automation, security, and metering are driving the designing activity in this category. We also shipped nearly 2,000 development kits for our new human interface products, where we see considerable opportunity. In addition to the handset makers we're sampling, our QuickSense Touch Sense controllers and proximity sensors are being evaluated for products ranging from touchscreens, to dispensers and industrial equipment. This product category has one of the most diverse opportunity pipelines of our new product.

In combination, we expect strength in the Broad-based products to accelerate into the second quarter. We project revenue to be up double digits sequentially, making Broad-based the largest business group as a percent of revenue for the first time. Supporting this growing business is an expanding sales channel. We expect a new franchise agreement that we announced last week with Arrow, the world's largest electronics distributor, to significantly increase our sales footprint. The ability of this new sales partner to augment our existing demand creation efforts and accelerate adoption of our Broad-based products is expected to have a meaningful impact on our business. Now for the guidance. To reiterate, for the second quarter we expect to be up slightly in broadcast and access, and expect the Broad-based business to be up significantly. We, therefore, expect revenue to be $131 million to $135 million. We expect gross margin to remain strong at 65% to 66%. We anticipate R&D investment to be up by $2 million sequentially, and SG&A to remain flat or decline slightly as a percent of revenue. On a GAAP basis, we are projecting $0.43 to $0.46. And on a non-GAAP basis, excluding stock compensation expense, we expect second quarter earnings of $0.62 to $0.65. 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 questions to one with one follow-up. Operator, please review the question-and-answer instructions for our conference participants.

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

Absolutely.

(Operator Instructions)

One moment while we wait for any questions to queue. Our first question comes from Adam Benjamin from Jefferies. You may begin.

Just to follow up on the Timing and video businesses, obviously they're ramping pretty nicely for you guys. You previously talked about the race to a $100 million for some of the four or five of the new businesses. I'm curious if you can update us now, given the ramps to those businesses, as to whether you think -- who will win that race among those two?

That's a pretty close race still, Adam. Timing had a very good start to this year. We expect this momentum to continue for the rest of the year into 2011. Clearly, at this juncture, from a revenue perspective, Timing is well ahead of video. On the other hand, the design win momentum with our TV tuner is very encouraging. We've made quite a bit of progress in the last 90 days with the top TV OEMs. So, we are looking at a pretty good year in 2011 for our video business as well. As I mentioned, we are engaged with and doing business with five of the top six brands, so that just speaks to the presence we have been able to develop with these customers over a short period of time. I'm not going to be able to give you a direct answer on who's going to win the race, but both are making very good progress towards that goal.

Great. And then just as a follow-up, I think I ask this every quarter on gross margin, you guys said it's outperformed and continued to outperform. I know you benefited a little bit in the mix in the quarter, but your guidance implies that this is sustainable going forward. Should we be thinking now that the gross margin can stay at these levels into the rest of this year and beyond, given the fact that, as some of these new businesses do carry higher gross margin than the corporate average? And the business that's probably going to see the most decline over the next year or two is the handset FM business, which carries probably the lowest gross margin. Is that fair to say?

So, Adam, it was a very good quarter and once again exceeded even our internal expectations. There are some onetime elements in the first quarter result that are not going to be carried forward, but we are encouraged that we can guide 65% to 66% for 2Q and we feel pretty comfortable about that. Looking into the second half of the year and into next year, I would probably point you back to our target model rage, as I don't know if these margins are sustainable over an 18-month period of time. But, you correctly pointed out we have been overperforming in this area for quite some time, and are encouraged at our position with where we are right now.

All right, guys. Thanks. That's all I have.

Okay.

Thank you. Our next question comes from Craig Ellis at Caris & Company. You may begin.

Yeah. Thank you, and congratulations. Necip, on the Aero distribution agreement, when do you think that will help contribute to revenues in the business? And are they more of a fulfillment distributor or do you think they help more with lead generation or a little of both?

We certainly expect them to augment our demand creation efforts in all three geographies. And we've been working with them even ahead of this announcement to gear up to train their resources out in the field. They are quite excited about the portfolio that they'll be able to add to their line cards. So, I most certainly expect quite a bit of effort from them on demand creation. They will, of course, augment demand fulfillment as appropriate, and we'll see design wins -- a good backlog of design wins from them this year that will contribute to revenue for us in 2011.

Okay. That's helpful. And then, Bill, you mentioned R&D investments. Are those more on the product design side or is that more on the field sales side? Can you give us some color on how you're investing in the business?

There are investments in both areas. But, generally speaking, the concentration of our hiring activity has been around engineers to support design activities. And certainly, the acquisition that Necip discussed in his formal remarks is effectively a design team that will come into the organization and contribute directly to the R&D line. So, we're making a concerted and conscious effort to build our resources in the design area, and we're engaged in more product opportunities than we ever have before.

Thanks, guys.

Our next question comes from Terence Whalen of Citi. Your line is open.

Hi. Thanks for taking my question. This one is on the broadcast side of the business. Can we get an update on expectations for handset FM tuners this year, what you see going on there? And also maybe an update of the split between handset and consumer at this point? Thanks.

I think what we guided to for second quarter, that is consumer audio going up and handset revenues declining slightly, will continue for the remainder of the year. I think we are being successful at diversifying the business into our consumer audio. As I mentioned, the AM/FM nearly doubled sequentially in the quarter. So, that's, of course, a very good start to a year where we expected AM/FM to double year-over-year. We're probably going to be in a position even to exceed that expectation. And the handset revenues will see a slight order decline throughout the year, and I expect that we will see a 50/50 split between handsets and consumer audio before the year is out.

Okay, great. Then, as my follow-up, I think you had said that this was the first quarter that Timing surpassed $10 million per quarter. Necip, what would be your best estimate for when the video business will surpass that $10 million milestone? Thanks.

Yes, that is essentially the same question Adam asked earlier. I think what we'll see in Timing is a steady ramp of revenues over the next couple of years. What we'll see in video is much more of an exponential ramp that we expect to start in the second half of the year, and it will be very significant in 2011. So, you're essentially asking what the revenue will be late 2011 between those two product lines. I know both will be very strong. I'm just not in a position to say which.

That's helpful. Thank you.

Our next question comes from Anil Doradla from William Blair. Your line is open.

Yes. Thanks a lot for taking questions. A couple of questions. In the past, if you look at your Timing focus, you focused on higher end applications, on the routers and switches. And with the acquisition of this company today, you seem to be getting into the more consumer-oriented applications. How will that play out and impact the gross margin lines for you guys going forward?

A good question, Anil. We have been to date engaged with primarily the major telecom and datacom customers, and have been developing some new products to be able to address segments that are just below the performance requirements of networking for some time. The Silicon Clocks acquisition, I think, will very effectively augment that move in terms of product road map for us. The strategy that we've always had in Timing and in Broad-based businesses in general is to provide products to the customer that has smaller footprint and smaller bond, and, that MEMS resonator will allow us to do that, essentially including that content in our clocks oscillators. So, moving further down does not necessarily result in lower gross margin targets for the new products we are developing. Just to name a couple of applications that those products will be targeting, we would be looking at wi-fi access points, printers, SAN and NAS equipment, servers, and so on.

So Necip, bottom line is that you're not worried about the gross margin impact by this acquisition? I think that be fair to say?

Certainly not with this acquisition now.

Now, on the broadcast video, it seems like there seems to be a much more greater bullish tone, especially for 2011. Can that reach $100 million in 2011?

I'm going to stay away from giving targets for next year on our products. But, I do certainly see that level of revenue potential for the video business. As far as I'm concerned, it's just a matter of time.

Great. And finally, from your vantage point of view, there's always been concerns about inventory buildup, double order bookings, and all that stuff. If you look at what you guys did, inventory management, inventories came down for you guys. But, looking out across the whole landscape, how do you feel in terms of inventory levels, supply chain component shortages? Any thoughts?

So, inventory for us is in very good shape. I think that investors have been asking us about build in inventory positions throughout the supply chain for the last couple of quarters, and certainly we are not seeing that in our supply chain. Our inventories are very lean. Distribution inventories have remained flat. And looking through to our end users, we do not see any pockets of inventory there either. Generally speaking, therefore, we would declare the supply chain in good balance. And going toward the second half of the year, we see capacity filling up within our vendors, and our anxious to secure our positions so that we can support the growth that we expect in the second half. So, our efforts over the next couple of quarters will actually be to increase our inventory position as we move toward a strong seasonal back half.

Okay. Thank you very much, and congratulations once again.

Thank you.

Our next question comes from Tore Svanberg from Thomas Weisel Partners. Your line is open.

Yes. Thank you. Another great quarter. First of all, can you talk a little bit about Silicon Clocks and if they are going to bring over any revenues at this point?

No. They are pre-revenue company. We're essentially acquiring them for the technology that they'll be bringing us. The technology that Silicon Clocks has developed would allow us to put multiple sensors on a single die on top of a standard CMOS wafer. So, initially we will be applying this technology to our timing road map, as I indicated, and we feel that this technology will also allow us to expand our horizons and address other applications in the not so distant future.

Great, thanks. And on the video business, you mentioned the design wins with five of the top six OEMs. Looks like the bulk of those ramps are going to be in 2011. But, will you actually get revenue contribution from those five already this year?

Yes. When I talked about five, just to be clear, this is business that we will have this year, either with our tuners or demods. Some of those brand names are engaged with us on tuners, and will generate revenue this year, and some are on demods and are starting to generate revenue again this year. So, all of these five will have some contribution to revenue for the video product line this

Excellent. Thank you very much.

Our next question comes from Arnab Chanda from Roth Capital. Your line is open.

Thank you. Two questions. One maybe for Bill. So, you're obviously doing well on your gross margin. You're -- basically your mix of your lowest margin business continues to decline. So, is this -- should we assume that qualitatively longer term you're likely to continue to see gross margins keep going up? You actually grew gross margins in Q1, even though your revenues didn't grow, and how far out. Thank you.

So, Arnab, I think that margins are very strong at the moment, and the mix transition that you described will help us and should continue to help us as we move into the future. I am expecting, however, that as we get into the second half and into next year, we will have incremental issues with cost, as the supply chain begins to fill toward capacity. So, as I commented earlier, my suggestion looking out 12 to 18 months is to remember our target model, and we will be endeavoring to operate as close to the high end of that margin range as possible.

Great. And then a question on the product side. Necip, you about your strategic focus. It seems like your Broad-based business is becoming your largest growth driver, and you're starting to make acquisitions even beyond your traditional CMOS areas. Is that going to be a primary focus in terms of acquisition? Or are there internal developments that you're focusing on that are also primarily? Thank you.

I think, on the Broad-based business side, we have a very strong pipeline of new projects that we've been investing in, as you recall. Last year, unlike many of our peers in the Broad-based businesses, we have maintained or slightly increased our R&D investment, and I think those efforts will show favorably later this year and next year as we continue the momentum in this business. Just to give you a data point to show the amount of progress that was made in this business, if you go back to the prior peak before the down turn, I think which is a good measurement point to gauge how strong we've been able to emerge from the downturn, our broad-based revenues in 1Q of this year, compared to the third quarter of 2008, is up 50%. So, that's a lot of progress that we've made over 18 months, and I'm pretty confident when we talk again in 18 months, our results will be at least as good.

Thank you very much, Necip. Thanks, Bill.

Our next question comes from Craig Berger from FBR Capital Markets. Your line is open.

Hi, guys. Thanks for taking the question. And nice job on the results.

Thank you.

Can you help me understand the Access business a little bit? I know you talked about some strong design wins. How much sustainability is there to the ProSLICs and to the embedded modems as we look out a year, two years, three years, to the extent you can provide any color? Thank you.

I think, again, the trend that we're guiding to for 2Q, with modems being down slightly and SLICs up, I think is a trend that will likely continue in the near to medium term beyond Q2. We're continuing to win new sockets with our SLICs. The market dynamics is generally favorable as the Voice-over-IP ports continue to increase, and we feel that we are getting the better part of the share in this market. And embedded modems, there have not been significant market share shifts. Maybe one to two Z wins or losses, and, the market dynamics there is about stable. So, with ongoing ASP reductions, we would expect the embedded modem business over time to decline at a slow rate. With how we started this year in the Access business and the slight improvement we're expecting in 2Q, I think we are very well positioned to deliver on the annual expectation for that business to grow in the high single digits.

Great. That's helpful. As a follow-up, if we could go back to the audio business? As transmitters and AM/FM mix, and how do we think -- and handset mix is down, how do we think about ASPs and also gross margins within that

Well, I think consumer audio obviously carries better gross margin than handsets. So, in the near term, any product mix shift will be favorable to margins. But, over the longer term, we also expect a higher level of competition to emerge, and that is one reason, I think Bill has alluded to our target margin range for the medium term as an expectation to set the right set of expectations on that front.

And can you just remind us --

In the meantime, we'll certainly benefit from the mix change, at least for -- as far as the audio business is concerned.

And can you just remind us what your expectations are for the audio business in total for 2010, if you've given any annual or growth or any color metrics?

We provided a guidance for the overall Broadcast business to grow in the mid teens for the year. And, of course, audio is a very large part of that at the moment. So, we will see 10% or more growth year-on-year in audio this year compared to last year.

Perfect. Thank you so much.

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

Yes. Thanks for taking my question. Necip, can you talk a little bit about the competitive landscape and the video broadcast side of things? What are you seeing in terms of comparatively on your CMOS tuners? Are there increasing numbers of folks, and how do they compare against your products?

Well, there is an increasing number of vendors coming into the space offering TV tuners. So far we believe -- and the customers validate that -- we do have a performance advantage over those silicon tuners. So, when we don't win a socket, that socket always goes to a discrete based CAN tuner, primarily because we didn't have or the customer didn't have enough time to develop their firmware and applications with us to get ready for production. What I'm trying to say is that the primary competition that we have today, as far as our tuners go, is the incumbent discrete based CAN tuners.

Okay. And then in just thinking about the transition from CAN tuners to CMOS tuners, is this a five-year process from, say, 0% to 80%? Or is it a three-year process? How quickly do you think the conversion will happen going forward?

My expectation on that time line has actually gotten shorter over the last three to six months. We are seeing a measurable increase in interest in adopting silicon tuners. Even customers who have looked at it as a long-term possibility are now working with our solutions in the lab, evaluating much more closely than they did last year. So, I do expect that in, say, two years time, there is a good chance that the majority of these sockets will likely become silicon-based tuners.

Okay. I'll stop there. Thanks so much.

Our next question comes from Sandy Harrison from Signal Hill. Your line is open.

Great. Hey, thanks for sneaking me in here. A quick question on sort of the geographic landscape and what's happening in a number of the different areas. If you can maybe spend a second talking about sort of your view of what's happening in North America versus the EMEA versus Asia and sort of how you expect that to play out this year? Do we see Europe come back finally after its nap, and just kind of what some of your expectations are from that perspective?

If I were to rank the three geographies for our business, I would have to put Asia at the top, driven by very strong demand from greater China, followed by North America, which we expect will grow in all product groups for us in the second quarter, followed by Europe, where the growth is still sub-par.

And then, if you look at -- and I think you talked about this a little in your prepared remarks. If you look at the four product groups, or the five product groups rather, that you guys are highlighting, would you rank, if you could, sort of what you expect of them in 2010 to be as far as the drivers for overall revenues for 2010?

Well I think the biggest impact will come from our Broad-based product line. We've already had a better than expected start to the year, and that was already the highest growth segment for us. So, it both Timing and Embedded Mix-Signal products are going to show very good year-on-year revenue growth for us, and will likely be together responsible for a majority of the dollar growth into 2010. I do expect, as I mentioned earlier, audio and video to grow as well, and there's a very good chance that Access will also achieve record revenues this year. So, there's a high likelihood that all five product lines will hit a record for us in 2010.

Great. Thanks for taking my call.

Our next question comes from Brendan Furlong from Miller Tabek. Your line is open.

Good morning. Thank you very much. Back on the video tuner question again, you're engaged in five of the top six brands. And I'm just curious if you could, in your discussion of primary tuners versus secondary tuners, if you could kind of give us a rundown of those five. What's your main engagement, excuse me. Is it on the primary side or the secondary tuner side? Thank you.

Okay. So of those five -- of those six, when I talked about engagements with five, two of those are with tuners. These are design wins that we've alluded to at the last earnings call. The other three engagements are with our demods today. It's fair to say all five are evaluating our tuners. But, we only have design wins with two at the moment, and one of these two design wins is a primary tuner and the second one is a secondary tuner.

So, of the other three who are not currently using tuners, are they currently more interested or doing evaluations on the secondary side or the primary side?

Both. Actually, one of those customers is looking at using us for both functions, But, we're equally well positioned for both primary and secondary, but we have a larger competitive advantage in the primary tuner due to our performance for analog TV reception.

Great. I just wanted to clear that up. My second question is, on the handset side, you said probably slight declines. I just wanted to clarify something there. Even in September quarter, which usually gets a seasonal bump in handsets, you're still expecting your handsets to be down slightly in the September quarter?

That's the trend that we are seeing in terms of units remaining relatively flat and blended ASVs being lower. Part of the reason in that is that some of our customers have adopted our lower priced solutions. But, so on the revenue basis that's the trend we see. To be that specific about the September quarter over June quarter, I think we're going to want to wait another 90 days.

Perfect. Thanks a lot.

You're welcome.

Our next question comes from Ian Ing from Broadpoint. Your line is open.

Thanks for fitting me in. The first question on R&D. The $2 million you're guarding up higher, how much of that is Silicon Clock's acquisition and how much is organic? And, also, as we look to the second half, any thoughts on the R&D organization would be helpful. Do you have a target head counts in mind or are you going to continue to hire and acquire opportunistically?

So, to answer the first question, it's about evenly split. The Silicon Clock's acquisition will add about $1 million of quarterly run rate to R&D, which will continue through the remainder of the year. On the second question, we will continue to add head count all throughout the year. I think my best guidance for you there would be that the index of revenue that we expect to achieve in 2Q will probably stay constant in the second half of the year. So to the degree we can expand revenues in the second half, R&D will probably expand commensurately.

And as a follow-up, just wanted to drill down into the TV tuner content. So, for the secondary tuners I guess the number might be more than one given that there's more than one picture-in-picture or more than one person doing a DVR. Is there a range or sweetspot in terms of number of secondary tuners, and would that always be an SOC?

Well, the second -- the tuners are always, to my knowledge, outside of the SOC. You could have a higher number of tuners in the application, but you would see them more in set-top box applications, which is, a secondary target for us at the moment. So, I would say that in IDTVs, 99% of the case you have two tuners or less.

Okay. Thank you.

Our next question comes from Srini Pajjuri from CLSA. Your line is open.

Thank you. Good morning, guys. Bill and Necip, talking about the second half seasonality, given your expectation that on the handset FM business, Necip, should we expect to see normal seasonality like the previous years? I guess, in previous years you had the consumer part growing pretty strongly in the third quarter. Or, because of the handset issues, should we expect something different this year?

I'm going to refrain from giving a quantitative answer to it, but I'll point to two dynamics that have some trade-offs. One, obviously for the industry overall, we are seeing an unseasonably strong first half. So, you might expect from that macro point of view that second half growth rates might be less than what we've typically seen for the industry. As it pertains to our business, we have a number of products that will start ramping over the next six to nine months. We have four new products in particular that will generate meaningful quarterly revenues starting this quarter and into the third quarter and beyond. In particular, these are the Power Over Ethernet products, the Easy Radio Pro products, the first product that we have designed together with the integration team, the human interface family of products, and finally the TV tuner. So, these are all going to be starting to ramp over the next six months. So, that will provide some additional strength in our business. And we talked about the handset dynamics earlier. So, how the trade-off of those three will result in a sequential growth into 3Q, I think, is too early to pinpoint.

Okay. And then just looking at the Q1 and Q2 guidance, Necip, obviously microcontrollers and Timing are fairly strong here. And some of your peers are also reporting a pretty solid industrial and networking demand out there. My question is how much of your strength do you think is driven by new product versus the demand itself coming back a bit here?

We're certainly benefiting from the healthier demand environment. I'd say, in Timing business for example, to use it as a proxy, we talked about a 30% sequential improvement in the business. And when I look at existing customers, they've also grown strongly from 4Q to 1Q, as their own demands improve. But, we've also added 40 new customers with our clock solutions, 50 plus new customers with oscillators. So, we're also gaining new customers and ramping new programs. But, we are benefiting from the improved demand environment for sure.

All right. Thanks.

Our last question comes from Suji De Silva from Kaufman Brothers. Your line is open.

Hi, guys. A nice job on the quarter. So, on video first, Necip. Sounds like you're a little more bullish than three months ago. Is part of what's driving this is that you're seeing maybe moving from a few models at each customers to visibility and design and a broader foot print of each customer? Or is that still on the common terms at that vector expanding?

Well, I think we've made progress on multiple fronts in the last 90 days. We have seen, first of all, we are starting to shift for revenue this quarter. And the customers who have been early adopters are now looking to proliferate our solution into their full models and 2011 models. We've been able to work with our customers to address a number of improvements that they have sought from us, and we're delivering on those improvements to our customers that will set the stage for winning more designs for 2011. And finally, as I alluded to earlier, we are seeing stronger interests from the customers in adopting Silicon tuners sooner rather than later. So, that level of increased enthusiasm that we see in the customer base is giving us more encouragement.

Okay. And then, real quick on the acquisition here, you have acquired some MEMS technology. I was curious if you already had some of that in-house or whether that's your first entree there. And if so, is it extensible across products outside Timing.

No, we have not had that technology in-house, so that's a strategic addition for us. And yes, we certainly intend to use this technology outside of Timing, although Timing will be the initial focus for the team.

Very good. Nice job on the quarter, guys.

Thank you.

All right. Thank you very much. This now concludes today's call.

This does conclude today's conference call. We thank you for your participation, and you may disconnect at this time.