Silicon Laboratories Inc (SLAB) 2010 Q4 法說會逐字稿

Good morning my name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions). Thank you. I would now like to turn today's conference over to Shannon Pleasant. Ma'am, 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 Company's financial results. The call is being simulcast and will be archived on our website. The financial press release, reconciliation to GAAP to non-GAAP financial measures, and other financial measurement tables are now available on the investor page of our website at www.SILabs.comI am now 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 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 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 actually predict or control that could have a material adverse effect on our business, operating results, and financial conditions. We encourage you to review our SEC filings, including the Form 10-K that we anticipate will be filed in the next two weeks, 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 Lab's 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. Fourth-quarter results of $112 million in revenue, GAAP EPS of $0.28 and non-GAAP EPS of $0.46, were all improvements, relative to our guidance. For the full-year, the Company delivered revenue of $493 million, a 12% increase over record revenue in 2009. Non-GAAP operating income was an impressive 26% of revenue. Non-GAAP EPS was $2.34, and we completed over $140 million in share repurchases. Additionally, we are announcing this morning, the strategic acquisition of SpectraLinear, a pure-play manufacturer of clock solutions. This acquisition will expand the breadth of our timing portfolio and significantly enhance one of our most promising businesses. Necip will discuss the acquisition and the rest of our product lines in detail, after I cover the financials.

Let me start with the current quarter, and year end, GAAP results,which include approximately $9 million and $40 million respectively in non-cash stock compensation charges. GAAP gross margin was 63.5% for the fourth quarter, and 65.7% for the full year. R&D investment was up in the fourth quarter to $32.6 million, and was $123.8 million for all of 2010. SG&A decreased, again, to $27.5 million in Q4, and was $113.8 million for the full year.

GAAP operating income declined for the quarter to 9.8% of revenue, but was up for the full-year at 17.6%. Other income was negligible. The GAAP tax rate was a credit for the quarter, reflecting a $3.7 million R&D tax credit, retroactive to the first of the year. The credit resulted in an $0.08 improvement to the fourth-quarter earnings result. Fully diluted GAAP earnings per share therefore, was $0.28 for the quarter and $1.57 for the full year.

Turning to our non-GAAP results, revenue of $111.9 million represented about a 7% sequential decline,driven by the expected weakness in our audio tuners and modem products. Gross margin was within our target range at 64% for the quarter, and exceeded our range at 66% for the full year. 2010's outperformance relative to our model was due in part to price concessions gained from our suppliers in early 2009,when capacity usage was at record lows, and a better than normal price environment last year, as customers focused heavily on continuity of supply. In 2011, we will not be benefiting from the same cost and customer dynamics. Therefore, we are expecting our margins to return to our corporate model of 62% to 65%.

Our gross margin will also become more mixed dependent, as we ramp our video business. While we do not generally discuss gross margin by product, our new TV tuner is below our corporate average. The initial product design was optimized for performance rather than cost, and this calculated trade-off has enabled us to achieve broad market adoption. The concentrated nature of the customer base enables an efficient sales model, which will allow the video business to be a significant computer to earnings and cash flow as it grows this year.

In the near-term, costs associated with the manufacturing ramp, and the continued mix shift, will move our corporate gross margin percentage toward the low end of our target range in first quarter. Via design and manufacturing cost improvements, we have a path to enhancing gross margins over time, yielding a corporate gross margin that continues to compare very favorably to peers in our industry. Operating expenses increased to $51.4 million in Q4, specifically, R&D increased to $28.5 million due to a high number of new product tape outs and the addition of a full quarter of the ChipSensors acquisition.

For the year, R&D was up 19%, reflecting significant investment in new product development activity. SG&A decreased slightly in the quarter, to $22.8 million. For all of 2010, SG&A ended at $92 million, or 18.6% of revenue. The first quarter shows a seasonal increase for us in operating expense, as we absorb the resumption of FICA tax obligations, and proceed with our annual salary increase cycle.

Operating expenses for the organic business will be consistent with the about 5% seasonal increase of prior years,and we will have the added expense of a stub period for the SpectraLinear acquisition. We therefore expect operating expenses, to increase by about $4 million in Q1,with the majority of the growth occurring and R&D. The acquisition includes the addition of 44 people, primarily in engineering roles, located in Silicon Valley and India. Second quarter will include the full effect of the acquisition on expenses, and we then anticipate that corporate spending will remain fairly constant the remainder of the year. The SpectraLinear acquisition is expected to be accretive to earnings, excluding the amortization of intangibles, in its first full quarter of operations in 2011.

Operating income for the fourth quarter was 18% of revenue, and 25.7% for the full year. Other income was immaterial. The retroactive $3.7 million R&D tax credit caused the tax provision to be slightly negative in the quarter,resulting in about an $0.08 impact to earnings per share. We now anticipate our nominal tax rate will average 16.5%, going forward. Net income declined to $20.8 million in the fourth quarter, or 18.6% of revenue. Resulting Q4 diluted earnings per share was $0.46 and totaled $2.34 for the full year.

Turning to the balance sheet. Accounts receivable declined substantially to $45 million, or only 36 days sales outstanding. We continue to have no known collection or bad debt problems. We were unsuccessful in our attempt to lower inventory in the quarter, but this is primarily due to our preparations for the Q1 video ramp. Inventory therefore, increased slightly to $39.4 million, or 4.1 turns.

We are still working to reduce total inventory, and we will endeavor to return to our target of 5.5 turns during the first half of this year. Channel inventory in the quarter was down, declining by 21% and ending the period at a comfortable 45 days. Cash flow from operations continues to be strong,and our cash balances increased $18 million in the quarter to a year-ending result of $383 million. We have $110 million remaining in our current share repurchase authorization, which we will expect to utilize over the course of 2011. Necip, I will now turn the call over to you.

Thanks, Bill. Good morning. Given today's announcement of the acquisition of SpectraLinear, let me start by commentary with a summary of the deal, and how it will augment our fast-growing timing business. As you know, we have been working our way down market, from very high performance clocks and oscillators to higher volume applications. Much of the timing business that's develop today is in networking applications like core switching equipment. Over the last two years, we have substantially increased our served market to more than $1 billion, through the introduction of a series of clock and oscillator products, addressing new applications from test and measurement to broadcast video equipment. Most recently, in December, we launched our first clock family targeted at HDTVs, set-top boxes, gaming systems, blade servers, and other higher volume markets.

We have been able to grow our timing business in the high double digits, even through economic headwinds, because of the compelling differentiation of our product. In 2010, our timing business grew by more than 70% to about 11% of total revenue. We remain the only Company able to offer a broad portfolio above clocks and oscillators, making it possible for us to become a one-stop-shop for timing products. And timing products, as you know, form the heartbeat of every electronic system.

SpectraLinear is a five-year-old startup, focused purely on the clock market. They are on about a $3 million per quarter run rate. Like Silicon Labs, they focused their development efforts on programmability and flexibility, while also optimizing for size and load power to address consumer and embedded applications. Their products align very nicely with ours in terms of differentiation and target market. The addition of their Tier 1 consumer-oriented customer base will accelerate our penetration of the high-volume consumer market,and our relative scale, resources, sales channels and credibility as the larger supplier will immediately enhance SpectraLinear's competitive position and presence.

We view the timing business as one of our most defensible growth areas, and expect this acquisition and our own organic developments to allow us to achieve a top two market share position over the next three years. Timing, as part of our broad-based business, which grew sequentially in Q4, beating our expectations of a flat to down quarter. Our broad-based business grew by nearly 50% year-over-year in 2010, and represented 35% of Company revenue. This high-growth area, now the largest of our three businesses, is very diversified, representing a broad set of end-applications and thousands of customers.

MCU Product revenue makes up the largest portion of the broad-based business, and grew by 40% in 2010, totaling about 17% of revenue at year-end. The MCU products were down slightly sequentially in Q4 as expected, due to some softness in consumer markets, and a continued work-down of inventory built in the first half of the year. New design activity, however, accelerated in 2010, with the total number of development kit shipments increasing by more than 20%, and total design wins increasing by more than 30% over 2009.

Our USB family, which grew by greater than 50% in 2010, is a great example of how our MCUs are differentiated in the marketplace. In a small footprint, we are integrating our pipeline forward, high-performance analog, and everything needed to add embedded USB with minimal, and in some cases, no USB expertise required. Our highest performance precision mixed-signal MCUs were also part of the strong growth rate, driven by medical and optical networking applications. And finally, our wireless MCU family, a small contributor to revenue today, represents a highly differentiated product that is seeing tremendous pull from the market. Particularly in applications like smart metering and home automation.

About 50% of our investment over the last several years has been directed to the broad-based business. We intend to increase that relative level of investment in 2011, as we fund a number of compelling projects to first, extend our timing roadmap with MEMS-based oscillators, second, begin development of our first family of mixed signal MCUs based on a 32-bit core, third, ready for market a family of environmental sensors, and lastly, continue to expand our product lines in human interface, short-range wireless and oscillation with next generation products. In combination, we are expecting our broad-based business to be up by 20% to 30% this year. We believe these investments in R&D will position us to continue to aggressively grow, progressing towards our long-term goal of growing the business to 50% of our total revenue.

Broadcast is another growth area, and represented about a third of our revenue in 2010. After a very successful year securing design wins at top OEMs, video will be our largest incremental growth engine in 2011, as we ramp with these customers. We are anticipating growing the media business from approximately $20 million last year, to about $60 million in 2011, largely due to the ramp in silicon tuners. We believe this corresponds to a market share of about 20% in iDTVs, and the lion's share of silicon tuner penetration in iDTV front-ends for the year. Designed to meet the highest performance specs, the current generation of the tuner has achieved our customer's very high bar. We believe, our cost-reduction road map and our nearly-complete development of an integrated receiver will allow us to compete effectively in this, increasing the competitive market.

Coming off of a 9% sequential decline in Q4, the broadcast business will bounce back in Q1, and continue to grow on the strength of the video ramp. Our audio business will be weathering the anticipated decline in the handset business throughout the course of the year, but new products, including our latest-generation automotive radios launched last quarter, are building a foundation for continued design win strength and a return to revenue growth. We have also been investing heavily in R&D in the broadcast business. We will be executing on our first 65-nanometer tape outs this year, targeting highly competitive and typically space-constrained applications.

In audio, we are leveraging the more advanced nodes to execute on new developments that are designed to future-proof our tuner portfolio. In video, our development roadmap at 65-nanometers enables expansion of our served market and additional content per system. And finally, let me mention that our third business, the access products, represented about 28% of revenue in 2010. For the fourth quarter, revenue was down about 20% sequentially, and we would expect the Q4 exit rate for this business to hold steady,plus or minus 5% throughout 2011.

Now, for the Q1 guidance. We are anticipating that access will deflect and broadcast and broad-based will be up. We therefore expect revenue to be $116 million to $122 million. We expect gross margins be near the low-end of our target range. We anticipate R&D investment will be up by $3 million sequentially, and SG&A will be up by $1 million. On a GAAP basis, exclusive of acquisition-related charges that are still being determined, we are projecting $0.14 to $0.20. On a non-GAAP basis, excluding stock compensation expense, we expect earnings of $0.33 to $0.39. Now, we would 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 question to one with one follow-up. Operator, please review the question and answer instructions for our call participants.

(Operator Instructions)We will pause for just a moment to compile the Q&A roster. And our first question comes from the line of Adam Benjamin with Jefferies.

Hey, guys. As always, a lot of moving parts. Just if I got this calculation right, roughly, you are talking about access business being down about $30 million, year-over-year, and you're looking at broad-based being up about $30 million, so it seems as if the broadcast segment would be the one that drives it either up or down. I know you are talking about the video business essentially tripling, but if you can clarify Necip, as it relates to the FM business, you've traditionally talked about that being up or down. I know, obviously, handsets are declining, but how are you looking at that business netting out for the year?

Okay. One clarification, the guidance we provided for the broad-based business calls for 20% to 30% growth and in dollars, that would be $35 million to $50 million for the year. We provided a $40 million increase, year-on-year on video, you're right on consumer audio, in particular, we will see a down year driven primarily by handsets, so net-net we are looking at a year and broadcast that is up strongly. And access, on a year-on-year basis is going to be down nearly as much as you said.

Got you. And then as you think about that mix coming in the gross margin steps down in Q1, I know that the access carried higher gross margin, but broad-based was quite high as well. And the broadcast is lower, so how do we think about those netting each other out? Is that really the true dynamic that's happening in Q1? Because that's a pretty decent step down or is there also a pretty sizable component of cost that you had in 2010 that you are not getting in 2011 with your foundry partners?

I think, Adam, it is a combination of those factors, the biggest impact in gross margin for 2011 will be the mix impact of video ramp. That's exacerbated in the first quarter with start-up related costs, and then we think we'll see corporate gross margins improve off the Q1 level throughout the remainder of the year.

Got you. And just to clarify, the timing growth you are talking about, does that exclude the impact of SpectraLinear? And then secondly, you are talking about high double-digits, I'm assuming you're talking about somewhat close to 70%, 80%, 90% growth, close to what you saw in 2010.

We won't specifically give out the timing growth rate, but, it is going to be high. We are looking for that business to continue its stride in terms of delivering a lot of growth dollars to us. It is inclusive of the SpectraLinear acquisition. As I mentioned, SpectraLinear today is on about a $3 million per-quarter run rate so that will augment the organic growth that we are anticipating in the business. I think, it's fair to say that within the broad-based segment, in terms of growth dollars, timing will certainly be charged this year.

Got you. And then just one last question, you guys have been adding a bunch of new segments that are starting to see some material ramps in 2011. Anything else you would like to talk about that could start layering in as you get to the back half of the year? Thanks.

In broad-based business, we are going to see isolation grow nicely year on year, short-range wireless will show a high growth rate as well. We expect it to sequentially improve throughout the year, and in the second half of the year, we have some expectations for a ramp in human interface that will layer on.

All right guys, thanks a lot.

And our next question comes from Anil Doradla with William Blair.

A couple of questions. Clearly, TV tuners and timing are going to be huge drivers over the next couple of years. Necip, if we look at the TV tuners, would it be fair to say in the next 24 or 36 months, 100% penetration of TVs will witness an adoption of silicon tuners?

I'm not sure exactly when we will get to 100% penetration. A year ago, when we projected 50% penetration of silicon tuners, it looked like a remote possibility to many. Today, with the progress we've made, in my mind, it's almost a foregone conclusion that we will see that. As a matter of fact, among the top tier OEMs, the penetration rate is higher than the average in general. So, the Tier 2s and 3s will also quickly follow the lead of Tier 1s. So, it will take a number of years, I think for silicon tuner adoption to be complete and hit 100%, but I think it is going to be on a pretty steep curve over the next 24 months.

And when you talk about the silicon tuner sales growth, this does not include demodulators, or does it include demodulators in your guidance and projections?

When I gave the revenue guidance, that does include everything, tuners and demods. Of that $60 million, the majority of it, and a significant majority is coming from the tuners. And when I talk about the market share, I'm talking exclusively about the tuner share in iDTVs.

Great. Now, on the timing side, given the size of this market, why would we not see, over a two-to-three year timeframe, the growth trajectory that you have established over the past year, over the next two to three years given that is such an underpenetrated market and your solution perhaps is viewed very uniquely across the industry?

Well, I think we are essentially projecting that. We have been on a 60% to 70% growth rate there for the last several years. We are anticipating another strong year in 2011, and I put out the target for us publicly to become one of the top two players in this market over the next three years, which will require us to continue to grow strongly. I think by the end of this year, as we exit this year, the fraction of the business coming from timing will measurably increase from the 11% we reported for 2010.

Great. And finally, Necip, we saw some inventory issues over the past quarter or two, can you give us an update where you kind of see the demand and supply being across the market and as we move into 2011? Do you see some of these issues get abated?

I think we have seen quite a bit of improvement, broadly speaking, in terms of demands and inventory coming to balance. There are still some pockets of over inventory. One example I can give to you would be in our MCU business, particularly in USB small consumer-centric applications, and still to a small degree in consumer audio. The inventory issues that we talked about last quarter have largely abated, but there are some customers who are still pointing to existing inventories that they also suggest will be cleared by the end of February.

Thank you.

You're welcome.

And our next question comes from Craig Ellis with Caris & Company.

Get that TV tuner going, guys. Bill, you mentioned that the current version of the tuner is more performance and cost-optimized, can you give us some insight into how long it will take the Company to come out with a follow-up and more cost-optimized version of the product?

Sure. Craig, we clearly set out to achieve all of the performance metrics that the leading OEMs would require in the initial design of this product. And we also priced it last year, as we went through our selling efforts to penetrate this market in an attractive fashion, to encourage these vendors to migrate from what had been a decades-old technology of the TV CAN to a single-chip solution. So, we are thrilled with the sales successes that we had last year, and made a calculated decision to try and go after market share, and obtain a huge footprint in this market.

We commenced design work, certainly last year, on a next-generation product. And, we are focused on both continued improvement in performance, but also, cost reduction, and a line of chips that are receivers, that integrate both the tuner and the demod into a single product. And, we will begin to sample and introduce products on those generation of devices this year. So, we will start to see some improvement in gross margins within the tuner category, as we go through the year, and then certainly, that will continue as we go into 2012.

Just to add, Craig, the next-generation tuner has been sampled to the leading, key customers already. So, they are already in the early stages of evaluation. That could be adopted for some refresh models in the second half of this year, but more than likely, they will adopt that solution for 2012 models.

Okay. Very helpful. Bill, you mentioned with SpectraLinear, there would be a fourth-quarter impact on R&D in Q2, is it possible at this point to identify how much this step up would be in the second quarter?

Yes. We think that the impact of SpectraLinear in the first quarter will be approximately 2 months, and be on the order of $1.5 million to $1.7 million, and then we will see that go to a full three-month impact in 2Q.

Got you. And then lastly, maybe, more for you Necip, the Company has made three really interesting technology acquisitions over the last three quarters or so. By just taking a step back, can you tell us one, how you're thinking about acquisitions near-term, given the number of deals you've done recently? And maybe on SpectraLinear, I know it is expected to be something that contributes to revenues this year, what about some of the other deals and how do we think about that?

Okay. Clearly, SpectraLinear is somewhat different than the other two acquisitions we have done in the past nine months, because they bring us immediate revenue and existing product portfolio and a lot of customer interactions. And, I think with the guidance we provided, it will join our business as a cash generator on day one. With respect to the two other technology acquisitions, I put them in a slightly different bucket, more similar to the acquisitions we have done, say, back in 2006 with Silembia, that brought the demodulation technology that ultimately resulted in products that we have developed internally here with that technology, that brought us good revenue stream in 2009.

So, that is the kind of horizon I would expect from those investments in terms of generating measurable revenue. Both of these acquisitions, both SiliconClocks and ChipSensors will result in product that we are now developing and will be sampling or introducing in 2011. And, I expect to see revenue coming from those products in an early 2013 timeframe.

Thank you very much, guys.

Our next question comes from Alex Gauna with JMP Securities.

Thanks very much for taking my question. Real quickly in terms of your progress on the touch sensor market. The catalyst for growth there, is it still coming primarily in the early stages from more industrial-type applications or are you seeing some progress or opportunity in some of the mobility market?

The existing revenue, and that's very modest, the revenue that we are likely to see in 2011 fiscal year is coming from the industrial applications. So, we don't have, at this point, any major wins to announce on the handset front. We are engaged with a couple lead customers with our latest-generation device, but have nothing to report on yet.

Can you remind us what this latest generation, what's differentiating it in the marketplace?

Well, we haven't made an official launch, I think we just hinted at the fact that we'll be following our first entry into this market with a more full-fledged product that improves the resolution on the screen and the response time. Some of the things that the applications care deeply about, but that's all I am prepared to say at this point.

Okay. And I know a lot has been asked on the TV tuner front, but with regards to what is driving the pricing structure for that to be below corporate average, is it the low cost of the legacy CAN tuners that you are competing with and trying to displace, or are there other factors such as other tuner integration schemes such as what a Broadcomm does or maybe a lower performing digital solution like a MAX Linear?

No, this is just replacing the hybrid tuner functionality that existed and will continue to exist in tuners. As Bill alluded to, when we designed the first generation of products, to make sure that we drive the transition from CAN tuners to silicon tuners over a short period of time, we dialed the knob in terms of performance all the way to the right, everywhere we could, and we made all the trade-offs to make sure that performance was going to be absolutely higher, in every aspect that we could think of. Generally speaking, we tend to find that more middle ground between performance and cost trade-offs, but in this case, since we were going to drive that transmission for the industry we did not want to take any chances.

So, there are aspects of that tuner design that we have modified to improve the cost basis on, at the end of the day that the ASPs are driven by market conditions, and this being the market it is, it generally tends to have price points and associated gross margins that are not comparable to some of the lower volume applications that we participate in. So, long-term, I think we will have a good cost reduction roadmap like we have had with other high volume products. But, this is going to be more on a yearly model upgrade than an ongoing cost reduction opportunity.

Thank you very much.

And our next question comes from Arnab Chanda with ROTH Capital.

Just a couple of questions. First of all, clearly you have talked about your very large growth drivers in broad-base as well as in video, I have a little bit of a question about your human interface products. It seems like, in kind of the most sort of hyped market, you're seeing things in tablets and smart phones where there are three suppliers that seem to be doing relatively well. My question is first of all, obviously Silicon Labs has great products, we've seen that over and over again, but why would a customer want to engage with a fourth supplier? Especially when it seems like the other guys are well-established. And then secondly, is there a human interface opportunity outside of the obvious smart phone tablet, and I'll follow-up, please?

Sure. This product area is no different, really, than the other product areas where we are bringing new, innovative solutions to microcontrollers, timing, some of the other areas we have talked about have far more suppliers than the handful you mentioned on the human interface front. And, I think human interface is a fast-evolving area that continues to require more features from their suppliers, and I think, with our technology, we will be able to find an attractive entry point for our products and gain some share over time. We are not willing to do that at any cost, we are willing to wait and find the best intercept point for our products and the needs of the customer. So, if there is some progress, I will be able to report more on the design in progress throughout the year.

Okay great. And just a follow up on your FM handset business. You didn't mention it, which I assume, it's at a point where it's kind of bottomed out. Can you talk a little bit about that? Are we at a point where it is no longer really affecting your growth, which it obviously did in fiscal 2010? Thank you.

Sure. Actually if you don't mind, I'll bundle this with the other declining business we had in CPE modems, and try to give you an idea of the scale of those two products. So, the CPE modems, which are going into the set-top boxes primarily, and FM tuners going into handsets, in combination, represented about a third of our revenue in 2009. As we exited 2010, the most recent quarter, the two combined represented about 17%.

So in terms of percent, that was cut almost exactly in half, and I expect the combination to be somewhere in the 10% range as we exit 2011. So I would say we are somewhat past the halfway mark in terms of the declines we see in those two products, and the current exit rate represents I think much of the decline. The handsets, in particular, you ask, were just about 10% of our revenue, and that will obviously continue to decline over 2011. But, these two areas combined, I expect will comprise no more than 10% of our revenues as we exit 2011.

Thank you very much, Necip.

And our next question comes from Sandy Harrison with Signal Hill.And your line is open. If your line is on mute, please unmute your line at this time. And Sandy Harrison, your line is open.

Operator, why don't we move to the next question?

Our next question comes from Terence Whalen with Citigroup.

Hi, good morning, thank you. This one is on OpEx. It looks like OpEx for the first quarter is stepping up, and part of that is obviously related to the acquisition, but if I take a step back and look at OpEx for the year, if we grow revenues, say 8% or 10%, what is the type of OpEx growth rate that we should be modeling into the model? Thanks.

So, I think that the inputs that I have provided, Terence will let you get pretty good for the year. The $4 million step-up in Q1 is a mix of the impact of the acquisition and then, typical first quarter growth that relates to the reintroduction of FICA taxes and our annual salary increase cycle. Also, simply, the full quarter absorption of run rate cost from hiring activity that we conducted during 2010 . We expect another slight step-up in 2Q, largely from the full quarter impact of the acquisition and then, that run rate in 2Q I would expect to stay relatively constant in the second half of the year. So, that should give you a pretty good foundation from which to build an

Okay. Terrific. And then as my follow question, this one relates to the video business. I think you are targeting a $60 million number this year. What type of a growth rate for that business can we expect beyond 2011? How much of that growth rate is driven by penetration into Tier 2s versus upselling the next-gen product? Thank you.

Well, we will certainly be looking to increase our penetration with the existing top tier customers we have today. I think we have every indication that they will increase their penetration and we will strive to maintain the lion's share of business we have with them on silicon tuners. Just to give you an idea of what some of the top customers we have, we have say, 40% share today of their TVs, and in some cases even higher. So, as you can see, some of the customers have rather aggressively adopted silicon tuners. Some others have been slower in this adoption and have chosen to still keep a relatively small portion of their models direct to silicon tuners and they are signaling to us that they will become much more aggressive in 2012, and I think we are well-positioned with all of them, I do think that we have a competitive lead. We are not taking our position for granted but it is also a fact that we have both the time to market and performance lead over the competition.

Great. Thanks for the color and best of luck.

Thank you.

Our next question comes from Craig Berger with FBR Capital Markets .

Thanks for taking my question. Can you just review pricing trends in your FM tuners and segments, or was there anything out of the ordinary?

No. Nothing out of the ordinary. I think in the year, as the level to the pricing environment has been slightly more favorable than we might have expected in the beginning of the year, as customers focused a lot more on supply continuity than pricing. I think across the board, for our entire portfolio, we are actually seeing ASPs improve in general, year on year. That is mainly due to introduction of new products, that has been a relatively favorable ASP environment.

You talked about improving the sustainability of some of the tuner products. I might have misheard you, but could you just provide a little more detail on that?

I'm afraid that's all we can say this point. I just wanted to make sure that our investors understand we continue to invest in audio and that we find areas that mesh well with our core capabilities where we can increase the stamp, but I can't really expand more on what that product is.

Can you give us some short updates on some of your emerging businesses like short range wireless would be one I'm interested in, anything related to the smart meter market would be another one. Thank you.

I would be glad to. Actually, short range wireless and metering in particular have been a very good success story for us. We have penetrated into four rather large smart metering customers in North America and Europe. In the year, with our short-range wireless product. We have started shipping into some of those at very modest quantities. A couple of those will kick in a bigger way in the second half of this year, but the pro products that we have brought to market have gained significant traction in that space. Another product line I can allude to is our oscillation product. There has been a huge improvement in design win numbers in this product line, driven particularly by our larger distribution partners, particularly in Europe. In applications such as solar inverters, switch-mode power supplies and drives and so on.

Great. A quick housekeeping question for Bill, how do we think about taxes for the year?

I think with the passage of the R&D tax credit, which was enacted throughout 2011, we have a nominal tax rate expectation Craig, going forward, of 16.5% which we think we are pretty set on, and there's not too many things that will change that.

Fantastic. I will leave it at that, thanks guys, good job.

Thank you.

And our next question comes from Tore Svanberg with Stifel Nicolaus.

Thank you. First of all, the $60 million in TV tuner, how is that going to ramp throughout the year, is it going to be a fairly linear ramp, or is it going to be more back-end loaded?

So the profile of that revenue base we expect for it to be like this, we are ramping in 1Q now, 2Q should be higher, 3Q should be about the same as 2Q, and then 4Q will be a down quarter. So, that's the profile of the business we expect to see.

Very good. Just to clarify, did you say that the innovative tuner demodulator product is already sampling?

Yes. We have sampled it to a very small number of customers, just very recently.

And then just finally, on the SpectraLinear products, you mention consumer, what applications within consumer is the Company targeting?

They have been selling into applications such as cameras, Blu-Ray, into residential gateways, into graphics applications, a whole host of consumer-centric applications they have penetrated into.

Great. Thank you very much.

You're welcome.

And our final question comes from Brendan Furlong with Miller Tabak.

Good morning, thank you very much. Quick question. Of the $20 million in TV revenue last year, how much of that was roughly approximately was demodulator versus tuners?

A slight majority came from tuners. And that was certainly back-end loaded in 3Q and 4Q.

In 3Q and 4Q. And so, roughly speaking then this year, $50 million or so of your projection is tuners?

A significant majority is, yes.

Okay. And then on the last question, circling back on the last one on SpectraLinear, you noted some Tier 1 customers, given the digital camera, Blu-Ray outlook, is that predominantly in Japan or was it in Korea?

They have business in Japan, in Korea, in Taiwan and in North America. This is the geography their largest customers are located in.

Across the board. Okay thank you very much.

Sure.

All right. Thank you for joining us. This now concludes our call.

And this does conclude today's conference call, you may now disconnect.