Silicon Laboratories Inc (SLAB) 2010 Q3 法說會逐字稿

Good morning my name is Valerie and I will be your conference Operator today. (Operator Instructions.) Ms. Shannon Pleasant, you may begin your conference.

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 companies 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 web site 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 1 hour after the completion of the call at 800-642-1687. 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 of 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 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 affect on our business, operating results, and financial conditions. We encourage you to review our SEC filings including the form 10Q that we anticipate will be filed 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.

Good morning everyone. Revenue of $120.2 million was within our revised guidance range. Operating results continue to be strong. And share repurchase activity remained high. Earnings came in at the high end of our revised expectations. While revenue performance in the second half of this year is below our previous estimates, we are positioning the company for the recovery in demand and new product ramps we're anticipating in 2011. Necip will discuss the business environment in detail during his comments.

Let me start with the current quarter GAAP results which include approximately $10.3 million in non-cash stock compensation charges. Third-quarter GAAP gross margin was 65.5%, R&D investment for the third quarter was about flat at $30.8 million. SG&A decreased to $28.6 million. GAAP operating income was 16.1% in the quarter. Other income was negligible, the tax rate was 6%. Fully diluted GAAP earnings-per-share therefore, was $0.40 .

Turning to our non-GAAP results. Revenue of $120.2 million represented an 11% sequential decline driven primarily by weakness in consumer audio and access products. As well as softening in our broad-based business due to general economic headwinds. We expect these conditions will continue into the fourth quarter. Despite the revenue decline, gross margin remained robust at 65.8% in the period. We expect gross margin to be at the high end of our target range in the fourth quarter. Operating expenses represented 41.1% of revenue declining to $49.4 million. Specifically, R&D was about flat at $26.4 million, and SG&A decreased to $23 million. The reason for the decrease versus our July expectations was largely related to lower variable compensation expense and also fewer than anticipated hires.

We expect operating expenses to increase in the fourth quarter particularly in R&D. We have a large number of tape outs scheduled as well as the addition of the Chip Sensors team, we acquired this month. In aggregate, this will add about $1.5 million in the quarter. Operating income for the third quarter remained strong at 25%. Other income was immaterial. The tax rate was 18%. Net income declined to $24.5 million for the quarter, or 20.4% of revenue. Resulting Q3 diluted earnings per share was at the high end of our revised guidance at $0.53 . A very solid operational result, given the unanticipated decline on the top line.

Turning to the balance sheet, accounts receivables declined to $63.8 million or 48 days sales outstanding. We have no known collection or bad debt problems. Inventory increased to $38.1 million. We had intended to build inventory as we were anticipating a seasonally strong second half to the year but with the shortfall in revenues, versus our plans, inventory is now above our desired level in terms are just 4.3. We will endeavor to reduce inventories to some degree before year end, and return to our target of 5.5 turns in the first half of next year. Channel inventory ended at 50 days, up slightly from the second quarter.

We ended the quarter with $365 million in cash, a decrease of $15 million. Cash flow from operations continued to be strong. Share repurchase activity remained high totaling 40 million in Q3. Year to date, we have invested $140 million in repurchasing shares and we have $110 million remaining in our current authorization. Our program has now cumulatively reduced our share count by over 30%, to a level below that at which we went public over ten years ago. I'll now to the call over

Good Morning. Let me start with a brief review of the quarterly results for our three businesses and then I'll talk about the current environment and the companies longer term prospects. First, the broad-based business was up 34% year-over-year but uncharacteristically down sequentially about 9%. Timing products had a record quarter benefiting from continued strength in networking infrastructure while admitted mixed signal products were down sequentially. About half of the admitted mixed-signal decline came from two large wireless and medical imaging customers that decided to adjust their inventories during the quarter. The other half came from consumer oriented MCUs particularly in the 'U. S' feed products after a very strong Q2.

The access business was down about 16% sequentially as anticipated the business slowed down in response to immature builds and weaker economic conditions primarily in Europe. Modems declined at a faster rate as ASP declines compounded slowing consumer demand. The broadcast business was down about 7% sequentially. The near-term weakness in consumer audio, prevented it from offsetting handset declines as it did in the first half of the year. We ended the quarter with handsets at about 35% of all the revenue and at about 10% of company revenue.

I'd like to stop here and talk through the factors impacting the business overall. At a high-level we can break the weakness we've seen in the second half about equally to two categories. Broader macro and inventory misalignment issues and a couple of known adverse dynamics, specific to our business. For my macro perspective there is an undeniable re-adjustment of inventories going on at OEMs and their contract manufacturers in reaction to softer than expected end user demand, particularly in consumer applications.

We see this most notably in our Consumer Audio product line, customer equipment business and market controllers. For example, our Consumer Audio revenue stayed flat sequentially in what we would generally expect to be a strong seasonal growth quarter. This is not an issue of market share loss. To the contrary the slowdown in Q3 comes on the heels of two consecutive record quarters of design win. So we know the customer demand will be back as soon as the inventory adjustment phase is complete. We will not see the revenue come back, however, in the case of handsets and modems. To quantify the handset impact, I can tell you that throughout the second half of this year, we are down about $7 million in quarter revenue, compared to our first-half run rate.

We anticipated this decline, however, we did not forecast that consumer audio would fail to compensate for that decline in the second half. With modems, we're down a similar amount in the second half compared to the first-half run rate. The secular decline in revenue is due to some de- bundling and the transition to lower speed, lower ASP modems in applications like set up boxes. But the inventory replenishment that drove shipments well above the trend line in the first half of the year, has made the impact of end-user demand weakness even more pronounced.

The near-term headwind created by these adverse dynamics in for [inaudible] handsets, and modems for customer premise equipment is a frustrating but essential part of the ongoing improvement in the complexion of our business. So, the bad news is that our results will not fully reflect the recovery of our industry this year. The good news is that these areas combined, now represent only 20% of our overall revenue. And we've gone through the transition while maintaining our profitability, putting us in an excellent position operationally for the next phase of our growth.

Macro conditions not withstanding, we're looking at a better year in 2011. This year most of our revenue growth is coming from the broad-based business and we project that business will continue its solid growth next year as well. Of the two vertical businesses while access will remain challenged, broadcast is poised to return to strong growth next year with the imminent ramp of our Silicon TV Tuner products.

For video, Q3 was a critical quarter in terms of securing designment for 2011 models. As you know, we've been working closely with five of the top six TV brands for some time. I'm happy to report that our silicon tuner won designs at all five OEMs for next year. We expect this ramp to begin in the first quarter and will provide you with our projected share and revenue expectations in January. We continue to dedicate considerable R&D to broadcast and believe there are a number of opportunities to apply our mixed-signal capabilities for both audio and video.

We announced in Q3 a class D amplifier that is very complementary to our A&FM radio products. There is typically an amplifier in applications like docking stations, and portable radios, both key markets for our A&FM products. In spite of the atypical second half we are experiencing, our A&FM business is expected to more than double in 2010 over 2009 and we fully expect growth to continue in 2011 as our strong backlog of designments translate into the market share gains we're forecasting.

Designment activity for our emerging product lines, remains strong. Including our wireless receivers and transmitters and isolation products. Our growing portfolio and growing sales channel are resulting in record design wins and increase customer engagements, particularly in markets like Remote Keyless Entry, Industrial Control and Green Energy Applications. Our wireless MCU has been in instant hit with customers and the 5 Kilovolt Isolaters are generating a record level of activity in the channel.

We've been in the market about a year now, with our Human Interface products, and recently introduced our latest device a USB to Touchscreen Bridge. While many of our early design are beginning to ramp, it will be our next generation products that will have the differentiation required to win at the margins we strive for, in high-volume consumer applications. We're sampling these products to offer customers today and believe they will be catalysts for meaningful revenue late in 2011 and into 2012. The strategic acquisition we announced this month of Chip Sensors, adds another leg to our growing Sensor Technology portfolio.

This temperature and humidity sensor know-how when acquired, will contribute to our ability to build a the long-term growth story in the sensor market and last but not least we continue to feel very confident about the prospects for our timing products, which represented a third of the broad-based business in Q3 and had another record quarter. Designs year-to-date of nearly 1,000 give us this ability into continued growth. We're working on a number of key developments in this category that will further expand our footprint in high-volume applications while maintaining the attractive growth margin profile that characterizes this business. Despite the good long-term indicators, near-term, we're anticipating that the access and broadcast businesses will go down in Q4 and we expect broad-based to be flat to down.

We therefore expect revenue to be $105 million to $111 million. Based on the anticipated ramp in TV tuners and the recent positive trends in bookings, we predict Q4 will represent a trough in revenue. We expect gross margin to be at the high end of our target range at about 65%. We anticipate R&D investment will be up by $1.5 million, sequentially and SG&A will be flat to down slightly. On a GAAP bases we're projecting $0.15 to $0.21 and on a non-GAAP basis, excluding stock compensation expense, we expect earnings of $0.33 to $0.39 . We now like to take your questions.

We will now open the call for the question and answer session. (Operator Instructions) The first question will come from Anil Doradia from William Blair.

Yes, thank you a lot guys. I think, Necip, when I kind of sit back and look at the big picture, you talk about fourth quarter being the trough. What gives you confidence, why doesn't this extend into the first or second quarter? Can you share with us why you believe the business will bottom in the fourth quarter.

Yes I can. There are basically three items we're basing this projection on. The first is the fact that we've been having conversations with our customers as well as our channel partners who are most affected by the downturn we see in the access and consumer audio business. And they relay to us that, at the moment, they are buying products from us at a lower rate than end-user demand and we expect, and they expect, the inventory for these two product areas to clear by the end of the year.

The second reason for our confidence is the reversal in bookings that we've seen so far in the month of October. When we revised our guidance back in September, I reported that our bookings had declined in the month of August. And September was worse in that regard. Our book to bill ratio dipped below one by the end of August and that got worse throughout the month of September and it also started seeing some softness in areas like industrial, toward the end of the quarter. That trend has reversed substantially in the month of October, the three weeks month-to-date. Our bookings right now is back to levels that we've seen back in June and July timeframe.

And the third item that gives us confidence is the ramp of the TV tuner. As I mentioned, we have designs with all five customers that we've been targeting and we know the programs that we want and we started receiving orders for shipments in the first quarter. So, all those three items combined, gives us the confidence that Q4 will indeed be a trough.

Great, thanks. One follow up is on the access side of the business. Do you think 2011 will be a single digit growth year-over-year or do you think that will be a down year for the access business?

I think given what we've seen over the last 12 months we are going to need to reevaluate the growth prospects for the access business, going forward. I think, conservatively looking at the access business for the next year, if you were to assume that the business will maintain the exit rate of 4/2 that will be a measurable decline year on year. And I think that would really represent, based on the trend that we see in the business and the fact that we are under shipping for demand right now, would be a conservative bet.

Thank you very much.

The next question comes from the line of Craig Ellis of Caris & Company.

Thanks for taking my question good morning. Necip, can you just talk about some of the puts and takes in the broadcast business as you look at the fourth quarter trends.

Sure, going into fourth quarter we see consumer audio down seasonally. This is primarily driven by lower shipments to our P&D customers. We have seen similar trends in prior years. I have to note, however the sequential decline to 4Q seems a little bit more pronounced this year than we've seen in prior years. And the handsets are down a little bit further than 3Q levels. So, AM/FM, I think will remain steady. The customers are telling us that the current level of demand for our products will remain relatively constant this quarter until they start building for Chinese New Year in the first quarter of next year.

Then, when you refer to that fourth quarter being the trough do you mean that the fourth quarter will be the last quarter for which revenue trends would be below seasonal? Or do you mean the absolute trough so that as you look out of the first quarter you think first quarter revenues would actually be up Q on Q?

The latter. I mean for the Q4 revenues to be an absolute trough. I think the growth in the business in video and broad-based will more than make up for the usual seasonal declines in 1Q. So I am basically suggesting 1Q revenues to be up.

Ok, and then, lastly, on the TV tuner adoption what rate of adoption or rate of penetration are you seeing? Is it in the 30% to 40% range or do you think your TV customers are actually moving to a higher rate of adoption in that next year?

I can't relay that with those customers we mentioned, which are leaders in their industry. The adoption of our solution ranges anywhere from 10% at the low end to 20%, 30% and sometimes even higher percentage of their volume. And based on that trend the projection I've had-- shared with you in prior calls of Silicon tuners representing 50% of tuners worldwide for 2012, I think has moved from being possible, to likely, based on the adoption rate that we are seeing with some customers.

Thank you Necip.

The next question will come from the line of Adam Benjamin of Jeffries.

Hi guys, just a follow-up, Necip, on the access commentary you gave. You seem to indicate you think there are some structural changes there, although you think that you can also continue to stay at the level you're talking about for Q4 on an annualized basis. I'm just curious if-- why that's the case? And then as you factor that business in, which has been sort of a nice profitable business for you on a gross margin basis, how should we be thinking about that coming down and affecting your longer-term gross margin guidance, given the fact that some of the newer products would carry lower gross margins in access?

Let me take the first part of the question first regarding the secular dynamics. I'm not suggesting a change in those dynamics over time. We've been managing the access business with these dynamics for some time. Particularly the modems for the customer premise equipment has been on a secular decline inside the access business. Well, to date we've been able to almost make up for that by the growth in prospects and POE and other industrial modems so to speak.

I think what makes this drop in access in the second half more pronounced also relates to us having sh-- evolved that trend line, if you will, in the first half and some imagery buildup possibly due to the World Cup, in hindsight. But, nonetheless, we're seeing a larger sequential decline in the 3Q and 4Q as a result of that. That doesn't change the overall dynamics. I think that business will continue to decline. What I am suggesting is that with many portions of the access business, slicks included, right now we are shipping below end-user demand and, therefore, taking the very low exit rate from 4Q for access business is probably a reasonable way to think about it for 2011.

With respect to the growth margin impact you're right, access has been running about corporate average gross margin. We have new products coming in next year, like BDO that will carry a gross margin that is below corporate. What will compensate for some of this is the growth in our broad-based business that carries at our higher corporate average. So, we'll give you a better sense of that mix dynamics when we talk about 2011 in detail in January, but we've essentially captured the puts and takes in margin here.

Got you. And just as a follow up, I know it's still a little early for the Silicon tuner part as it relates to the wins you have there. But based on what he see right now for next year on those wins, do expect that business to be bigger than the timing business or timing still to be bigger next year?

I think that's a bet that you and I will have to keep under wraps for a little while longer, but both businesses I think have a very strong growth dynamic into 2011. Obviously we feel very good about what we've done for video but there also there is very strong backlog of design wins in our timing business that gives us confidence, so it will be, as I mentioned before, will be a very close race.

Thanks guys.

The next question will come from the line of Craig Berger of FBR Capital.

Hi guys. We'll try it again. Take two. Can you help us understand what the design win pipeline is looking like for some of your growing businesses, for example capacitive touch? I mean, how much can that contribute next year? I just ask because you guys are a growthy firm, but you're shrinking faster than anyone right now, so help us understand why we still consider you to be growthy.

Sure, I think if you look at next year at the high level, as I mentioned access on a year-on-year basis will remain challenged. Will show a decline. I expect the broad-based business to continue its growth patterns. We've been able to grow that business close to 50% this year and we see very significant growth in that business also next year. And what gives us confidence in making that statement is also the ongoing strength in the design wins we see. We've seen over 500 design wins in market controllers in 3Q, which is a record number. We've seen roughly 400 design wins in timing, which is a record quarter and brings the number of designs to nearly 1,000 for the year. Which already is a higher number than what we've done all year last year. We've seen a record number of design wins in short range wireless and isolation.

And this fact I think is a combination of both us having introduced new product in those areas over the net last 9 months, but also very focused marketing campaigns and launch activities that we've undertaken as well as the expansion in the sales channel that we've been able, earlier this year. I think all of these factors combined give us a lot of momentum on the design front. So, feel good about the broad-based business growing. Similarly, we have high confidence that broadcast will return to strong growth next year. I alluded to the design wins we haven't yet given and estimate on the magnitude of that revenue, but I can tell you that broadcast over all will show significant growth.

So, on FM tuners going into handset, you said is down to 10% of company revenues which by my estimate is down by more than half year-over-year. What does that business look like a year from now?

So, handsets, I think when all's said and done, would've gone down by about 30% year on year. If you measured from the peak quarter that we had your estimate is right, but on an annual basis is down about 30%. I think what I see in that revenue base is for it to continue to decline. Possibly at the rate that we've endured this year.

We feel good about our interaction with Samsung, who continues to grant us designs so that our market share with them is still north of 50%. And to the extent the design wins are decided for 2011 first half, that trend continues. But we're not arguing that both the handset business which is at 10% now and the modems for CP, which is just under 10%, will continue to decline. The other 80% I think that we expect to grow at 25% or higher that will keep us growthy, in your expression.

Last question on consumer FM tuner. Is that the same dynamic that's hit handset, hit consumer? And when does that decline begin to set in?

I think with consumer audio we don't see any dynamics similar to the handset. You do not have in your portable radios or docking stations, or PNDs, the same dynamics that you see in the handset. And we still continue to grab more market share there. The current pause in the revenue growth there is not related to any market dynamics, but really an inventory demand imbalance that ought to work itself out in the next quarter or so.

Thank you.

The next question will come from the line of Terence Whalen from City.

Hello. Thanks for taking my question. This one relates to an earlier comment, Necip, that you had made about, in general, the industrial markets in the industrial activity that you've seen through the quarter. I think that you had said that it had decelerated late in the quarter. I wanted to just get an update on where order rates for industrial markets are now, into the third or fourth week of October. Thanks.

I'm not able to give you a quantitative response in terms of bookings in the industrial segment but we did note that in our embedded mixed-signal business, which has a lot of products going into industrial applications, the level of bookings has slowed down in the second half of the quarter as opposed to first. And that has continued into the fourth quarter, early fourth quarter. So, overall net bookings have shown a reversal, but from industrial segment, what I see is a slowing of demand for our products. And I should also note that when we make a projection in terms of 4Q being a trough in revenues and 1Q revenues being up, we are making some allowance for this industry wide slowing to spread into industrial as well.

Okay, understood, that's helpful. Then I guess the follow-up question would be something that's more of a broad-based question. Obviously the constitution of the business is changing fairly significantly, heading into 2011. For example in broadcast relying more on consumer audio versus handset, then also having the ramps in video tuner, and timing and microcontrollers. Overall, as you look at the Business, is Silicon Labs going forward, going to be a little bit more susceptible to quarter to quarter inventory corrections? Is the revenue inherently going to be a little bit more volatile because of some of the markets that you're playing in and as a manager, how do you deal with that as you manage the Business? Thanks.

I think the way we are spreading our investments across the portfolio is consistent with the mix that we want to achieve in the Business between verticals and horizontals. I think it is safe to assume that the broad-based business will continue to represent a growing portion of our revenues. We are going to benefit from a strong ramp in video in 2011, but that does not really alter the trajectory we are on in terms of building the broad-based business. So, we might see some seasonal patterns more pronounced over the next 12 months to 24 months as we ramp some of these new vertical products, but in general I don't see the business being more susceptible to quarterly changes as we move forward.

I should probably also make a quick statement here in terms of the seasonality that we will likely impose on the business as part of the video ramp in 2011. That incremental revenue will come with the profile of a ramp in the first quarter. Second quarter it would have been full ramped to the peak levels, if you will, for those models. Then third quarter, moderates from this, and the fourth quarter would be down. That's the profile of the video revenue that we're going to be overlaying on the business in 2011.

Thanks for the insight. Best of luck.

The next question will come from the line of Arnab Chanda from Roth.

Thank you. Couple of questions. First of all, Necip, if you could talk a little bit about the FM in the handset business. Is that something that we will now expect to basically disappear over time? And then another question on broadcast. Is the quantitative trajectory of this business, the video business, can it be similar to when you actually started to see the audio ramp in the handset or is it going to be a little bit more moderated? Thank you.

The handset revenues will certainly decline over time, so there's no change in that outlook. We are at now, 10% of our revenues, in every year you can expect this to be at the lower percentage. How long that will take to get down to zero is anyone's guess, but I'm assuming at the moment that it will be a minimum of six to eight quarters for us to get from where we are to a minimal level.

In terms of the ramp, in video compared to handset, they do have a similar product cycle, although they do work on annual model cycles. So, unlike the handsets, you don't see new models coming online every month, so we will pretty much follow a calendar year model profile as I alluded to. Every now and then there's a refresh in the fall that some OEMs bring on, but that's a smaller volume and less of an impact to the profile I mentioned earlier.

The next question will come from the line of Tore Svanberg of Stifel Nicolaus.

Good Morning, this is Eric calling for Tore. I just wanted to follow up you talked about Q1 and it being possibly an up quarter. Can you just remind us what seasonality-- or what the seasonality is overall for your business? For Q1 and through the year.

So Eric, typically we would guide a first quarter to a seasonal decline and over the past several years we have suggested on the order of 7%. It's a little unusual for us to provide insight a quarter out, but we felt to help you with modeling it was important for us to suggest that Q1 would not exhibit that pattern in the current year, and in fact we felt comfortable that Q1 would show growth. So it's to help everyone get a decent starting point on 2011 and begin next year with an up quarter.

I think generally speaking, the seasonality pattern for the business is going to continue to show consumer seasonality in Q1, growth in Q2 and Q3, and then a slowdown in Q4. But this really relates to what we would expect normality will be once we get out into 2012 and 2013. Not exactly the pattern that you will see next year coming off this second half slowdown that we're currently experiencing.

That's helpful. So, I guess that assuming that video really starts to accelerate, that could change some of the dynamics in your business when you talk about seasonality?

It certainly can and will be more pronounced in 2011 as that is really the first year of substantive volume from that product line.

In terms of gross margin you're still operating towards the high end of your target. When do you expect that to kind of normalize back to, we'll say the lower end of that or where do gross margins, do you believe, start to settle into, as some of these other businesses, particularly video and consumers, start to ramp?

As Necip commented earlier, we have some interesting dynamics going on in product mix. Video, which will show a strong ramp next year, will have a below corporate average gross margin, but I want to point out that we expect to have very strong growth again in 2011 from the broad-based businesses that include MCU and timing, both that have above corporate gross margin averages. So, we're going to experience product mix affecting our margins as we go through next year. I'm pleased to suggest that for fourth quarter we still see margins in the 65% range. We will give you some more insight into gross margin dynamics in January for the full year, but I think at this juncture the fact that we have been relying on our target margin range and continuing to suggest that we can perform in that range is appropriate.

I want to also add that we've been managing the Business at a strategic level for investments and at a tactical level for pricing policy. Such that we maintain a healthy gross margin profile without impeding the growth in the business. And we deem that healthy growth margin range to be 62 to 65 while growing the business at the 15% or higher. So, admittedly there has been above that target range this year with a combination of multiple factors that is not likely to repeat in future periods. So, for all practical purposes I would suggest that you look at us as a company that will maintain this target margin range over time without artificially impeding our growth rate.

Great. Thank you.

The next question will come from the line of Sandy Harrison of Signal Hill.

Yes, thank you. As you guys look at some of the businesses that are maybe facing a little bit more of a secular headwind and that you had looked at investing in and sort of as a cash cow. Is there a thought, internally, of maybe carving some of these out in favor of maybe swapping that out for some tuck-ins on your strategic plan?

No, there isn't. The access business or the modems in particular that we're talking about here has been generated profits for us for the last five to ten years. That really funded our investments that grew the broad-based business to where it is today. Similarly, the success that we've had in the handset business has generated profits that funded investments in consumer audio and really video that will start paying dividends next year. So, I think those businesses play an integral role inside the portfolio.

We are looking at, on an ongoing basis, small tuck-in acquisitions to augment the organic growth in future years. We've done a couple small deals as you know this year more of a technology acquisition, but we're continuing to look for businesses that might fit with our portfolio and margin profile to augment the growth. There is nothing imminent that we can comment on right now.

Then, while nothing-- anything that's imminent-- What are your thoughts or what areas sort of interest you as you've entered some of these new markets both looking at some video that's going to ramp and then the TV market from a tuner perspective next year? Have you guys unearthed any areas that you think are interesting or that have sort of emerged in your work here that seem interesting or attractive to you?

The type of businesses that are attractive to us from an acquisition point of view, largely fall in the category of what we report today as broad-based business. We do find businesses that can help us complement our portfolio in any of those businesses we'd be interested in pursuing.

Great. Thank you for taking my questions, guys.

The next question comes from the line of Sanjay Devgan of Morgan Stanley.

Thank you for taking my question. Necip, I just have a quick question regarding your broadcast video business. You've done a great job winning wins with the numerous tier one TV OEMs that you have. My question kind of concerns, how quickly can we see, or what are your thoughts in terms of leveraging your tuner expertise beyond TVs into other applicable markets, say, set top boxes, or any other type of consumer product devices that can leverage your tuner expertise?

That's a good question and that's certainly within our sights. I think in the near term as I answered similar questions in the past, I suggested that our focus in the near term remains very much on the digital TVs, hybrid TVs, because we want to make us the default name for silicon tuners for that particular application. And that's where we have the most significant differentiation in terms of price performance. But we do want to take that technology into the adjacent markets that you mentioned. We will require developing or modifying the products that we have, to go after those segments more meaningfully and in a more competitive manner. But that additional market opportunity certainly within our sights.

Thank you. Then, just one follow-up. You noted that the timing products enjoyed another record quarter this quarter. I was wondering if you could just give us some qualitative input into some of the drivers IEN markets or any kind of qualitative color around that as to what kind of drove that upside?

We are continuing to see strength in overall demand from our networking customers. We're seeing this in the quarter both from our North American customers as well as large customers in China. I think we're benefiting from the continued growth and infrastructure, particularly wireless infrastructure, to which we participate in backhaul networks through our timing devices. We also continued to turn the designs that we've had a long time ago into revenue. As you may know, this has a gestation period of 12 month to 18 months from designs to revenue. So, some of the designs that we've had back in early 2009 are only now turning into revenue. So with all of that with those share gains and continued strength in networking we continue to enjoy a strong business in timing.

Great. Thank you very much.

The next question comes from the line up of Srini Pajjuri from CLSA.

Thank you. Good morning guys. I apologize I missed most of the call due to technical difficulties, so if this question has been asked I apologize in advance. Necip, given your comments about Q4 being trough, as you look at Q1, do you anticipate growth across the board or do you see some markets kind of outgrowing others in Q1?

When I look at Q1 we do see growth in our broad-based business. I've alluded to some inventory adjustments in the second half by some large customers. That effect will be removed come first half of next year. We continue to see this steady improvement in revenues in our wireless business, in our timing business, and I think most importantly in 1Q we'll start seeing a strong ramp with our video products. So, I think at a high level these are what will drive the business forward in the first half of next year.

Okay, great. And on the TV tuner business you said you know Q2 might be the peak quarter for ramps. Given that you have design wins pretty much at all of the top-tier vendors I would've expected the ramps to last a little longer than one quarter. Just curious as to why suddenly, ramping for one quarter and then flattening out?

This is the profile of their business. They ramp their models in the first quarter, they get to peak levels in the second quarter, and then the third quarter moderate. This just follows their demand patterns exactly. There are no design wins to add in the middle of the year that we can report today so we're talking about all of these programs that I mentioned as design wins starting to ramp simultaneously in the first half of the year.

Okay, got it, and then Bill, maybe one for you. On the inventory on the balance sheet you said it will take a couple quarters for you to work it down. Just curious, what's the target range for you in terms of turns and also why would it take longer than one quarter to work it down? Thank you.

I think, Srini, the target for us is a turns ratio on the order of 5.5. We have enjoyed that inventory turns performance during the first half of the year. We built more inventory than we intended, given the revenue shortfall and we will make progress in reducing inventories during the fourth quarter. But as we have alluded to, we've also got a product ramp in video coming in the first half of the year, which we have to obtain inventory to support, so it will take us into 2011 to get back to our model turns statistic.

Okay, thank you.

The next question will come from the line of Brendon Furlong of Miller Taback.

Thank you very much guys. You alluded to earlier on the timing business that you would penetrate some more higher volume markets, while on the high end com equipment stuff. If you could just flesh that out and what the impact on that may be in later 2011?

We have a number of products that are targeting this-- midrange markets if you will, with respect to the level of performance required. We will be introducing these products to our customers in the coming months. And I think 2011 will basically be a year where we accumulate design wins in the channel with those products. So in terms of what will drive the timing revenue in 2011? We're not really looking to those new products as the driver but more the backlog of design wins that we've had for the last 12 months to 18 months with existing products that will turn into revenue.

Understood. Then, on the industrial side, which you're saying is starting to roll over a touch here into the end of the year. Normal seasonality in Q1 industrial is up. Do you expect that to not be the case given that it's kind of lagging the rollover of the consumer in PC space.

I agree this is fickle seasonality you see. In the last 12 months to 18 months we haven't seen anything that is typical seasonal. So it remains to be seen what the inventory situation is and what the overall demand picture looks like to be able to answer that question more precisely. But as I alluded to earlier, we've made some allowance for that weakness to continue into 1Q, and giving directional guidance into 1Q for us.

Understood. Thank you. My last question is on, you said the bookings rebounded to roughly back to the June, July kind of levels. Can you remind us of what that was approximately?

We don't generally talk about our booking levels. I just felt compelled to give you that data point to tell you that it feels, from a demand point of view, that we've gone through the worst of it.

Ok, perfect. Thank you for that.

Our last question will come from Ian Ing of Gleacher & Company.

Thank you for fitting me in. Can you talk a little bit about your debundling of the modems? Could you remind us what you're bundling with the modems in a set top box. Are you confident that other contact is in tact? And do you expect some debundling trends in the other applications like printers and point-of-sale terminals? Thanks.

When we look at the access business which is just over 25% of our revenues today, if I were to split them into two pieces one is a modem for customer furnished equipment like setup box, DVR, voice DAs for gateways and so on, and the other consisting of slicks for voice over IP applications, POE, modems for point-of-sale and so on. That split of that 25%, a slice of the pie is about 10% and 15%. 10% is in the CP and the 15% elsewhere.

So, that 10% is really what we have always considered most vulnerable and that's the piece of the modem pie that has been secularly declining. I don't see really any change in that dynamic. Maybe we've seen a near-term acceleration in some of the unbundling or move to lower speed modems. In terms of the dynamic, I'm not yet seeing any major change. I think we're continuing to grow the business in that 15% to try to make up for the adverse dynamics in the CP line.

Great. Could you size the human interface opportunities you're going after? Some competitors are going after handsets, exclusively. Maybe you could talk about the biggest opportunities your serving and whether you're doing it with direct sales or through distribution. Thanks.

Okay. So, we're competing in that area with both touch controllers as well as proximity sensing products. Particularly the proximity sensing products have a broader set of applications that we are targeting and that is coming primarily through the channel. So, some of the wins that we've head that are starting to generate revenue in the current period have all come from-- primarily come from the channel. There have also been some applications in consumer audio where those proximity sensing devices have found use.

And finally, we have some touch sensing wins in some consumer applications but we don't have today, a large design win, if you will, in the sense of tens of millions of units that would come from handsets. And, as I alluded to it in my prepared remarks, we had intended to come out with a next generation product to really go off this in a differentiated matter and now have this product out, sampling to customers. I'll continue to report on the feedback that we get from our customers, but collectively to answer your primary question, we will be going after both the handheld opportunity across the board as well as the industrial applications.

Great thank you very much.

At this time, there are no further questions. Miss Pleasant, at this time, do you have any closing remarks?

Yes, thank you. I appreciate you joining us. This now concludes today's call.

This concludes today's conference call. You may now disconnect.