Silicon Laboratories Inc (SLAB) 2011 Q3 法說會逐字稿

Good morning. My name is April and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs third quarter earnings 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 will now turn the call over to Ms. Shannon Pleasant. You may begin, ma'am.

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. This call is being simulcast and will be archived on our website.

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. I'm joined today by Necip Sayiner, President and Chief Executive Officer; and Paul Walsh, Chief Financial 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. 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 the Silicon Labs in our products view today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material affect 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 next week, and identifies 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 Labs 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 turn the call over to Silicon Laboratories Chief Financial Officer, Paul Walsh.

Good morning, everyone. Third quarter revenue was down by 5.6% sequentially. We finished near the top end of our guidance at $119.1 million. We were able to counter topline softness with strong operational performance yielding excellent earnings leverage.

First, I would like to cover the GAAP results, which include approximately $9.1 million in non-cash stock compensation charges. GAAP gross margin was up slightly at 61.2% for the third quarter. R&D investment declined in the quarter to $31.7 million and SG&A was $27.3 million. The GAAP tax rate was 20.9% resulting in fully diluted GAAP earnings of $0.26, well ahead of our guidance.

Turning to our non-GAAP results, the revenue mix differed somewhat from what our initial expectations were entering the quarter. The broadcast business came in relatively flat, and our broad-based and access products experienced larger macro related declines. Given the mix shift, gross margin was down 60 basis points to 61.5%. We expect the margins remain in this range in Q4.

Anticipating an uncertain demand environment, we again exhibited very good restraint in controlling operating expenses. On a sequential basis, we reduced spending approximately 5% through lower variable compensation and further reductions in discretionary spending. R&D decreased to $28.1 million and SG&A declined to $22.4 million. SG&A expense is at its lowest level since the first quarter of 2010.

Operating income improved versus our initial expectations, given the expense restraint I just described and was 19% of revenue. Other income was $300,000 and our non-GAAP tax rate was 16.8%. Therefore, net income was $19.1 million or 16% of revenue. Resulting Q3 diluted earnings per share was $0.44, well above our guidance.

Some of the impressive earnings result was also attributable to our aggressive buyback activity. Expending $86 million in Q3, we repurchased 2.5 million shares. We ended Q3 with a diluted weighted average share count of 43.9 million, down sequentially by 2 million, reducing the float by 4.4%. Share count is expected to decline further this quarter as a result of Q3 substantial repurchases. Since the repurchase program's inception in 2006, we have now spent more than three quarters of $1 billion totaling 22.4 million shares and reducing our float by 35%.

On the balance sheet, accounts receivable decreased to $58.4 million or 44 day sales outstanding. We continue to have no known collection or bad debt problems. Inventory was particularly well-managed given the revenue decline and the simultaneous need to build inventory for new product rims. We ended the quarter essentially flat at $38.4 million or 4.8 turns. Channel inventory in the quarter declined by about 11%, ending the quarter at 41 days.

Once again, we generated strong operating cash flow, which partially offset the share repurchase expenditure previously discussed, resulting in cash and investment equivalents of $301 million at the end of Q3; of which a little under 60% is offshore. And finally, our Board of Directors has approved a new authorization for $50 million that will run through April of 2012. Necip?

Thanks, Paul. It's clear now that the early signs we had in July of weakening end markets were not unique to Silicon Labs. While we recognized the slowdown early, our visibility was limited, and we did see the revenue composition change over the course of the quarter as Paul mentioned.

Broadcast performed better than we expected. Led by solid audio demand and a less steep decline in video. Our FM tuner business had a better seasonal lift than we had anticipated. Audio products, in general, continued to generate strong design win activity particularly on the heels of newly launched products. For example, in the quarter we introduced another new family of AM/FM receivers, targeting a new segment that is not well served by Integrated Solutions today.

In video, both TV tuner and demodulator shipments declined, as TV makers worked off inventory. We believe this inventory correction is largely addressed and expect the video business to be up modestly sequentially in Q4. From a competitive standpoint, I feel very good about our position going into 2012. The degree of penetration we are seeing at tier 1 TV makers is meaningful, and could represent significant upside when TV sell-through improves.

We're also expanding our portfolio in the TV market and have what we believe is the broadest set of offerings for IDTVs globally. During the quarter, we introduced a silicon tuner family specifically targeted at a tier 2 TV makers in high volume emerging markets. This represents an untapped segment where silicon tuner penetration is virtually zero. In Q3 we also introduced our latest generation hybrid silicon tuner and the industry's first receiver combining both the hybrid silicon tuner and a demodulator in one device.

We now provide TV makers with a full range of options. From analog or digital on the tuners to full-featured and fully integrated receivers, a portfolio unmatched by competitors. It gives customers a R&D efficiency by enabling a single PC redesign, time and cost savings by using a single software API, and predictable RF performance for their front end, regardless of the skew.

In the short-term we expect the broadcast business overall will be down slightly sequentially in Q4, due to seasonal declines in audio with video up modestly as I previously stated, supporting our video revenue target of $60 million for 2011. Our broad-based revenue declined about 7% sequentially, impacted by weak end markets. The MCU decline reflected a uniform softness across our smaller customers served through distribution. Larger customers of our USB and precision mixed signal devices fared relatively better, however, the customer base remains cautious and is providing limited visibility and a tempered view for the remainder of this year.

Despite the near-term uncertainty, we did have another record quarter in terms of MCU design wins, reaching nearly 600 in the quarter. Q4 will also bring some significant product milestones, as we sample our first 32-bit platform as planned, and launch the latest generations of our low-power and wireless devices. These MCU platforms delivered meaningful technical advances in terms of mixed signal integration and performance and position us well for continued share gains. The timing product line surprised us and delivered another record quarter, continuing our streak. We also secured a record number of design wins and identified new opportunities and applications, including wireless video and data streaming, docking stations, IT phones, and solid state storage. So while heavily telecom focused today, we're making real progress towards extending our market penetration.

Turning to the telecom market, we're not at this time anticipating a recovery in Q4. We are positioned well with tier 1 telecom OEMs and have new business ready to ramp with our mid-range products. So if any sustained improvement in this space does materialize, it will represent upside. We're expecting that broad-based products will be up in Q4, due primarily to the ramp of our touch controller into our first handset win. This ramp is already well underway, and the first handset, part of the Samsung Galaxy Y family, is available now in Europe. While I will refrain from quantifying the potential for the touch controller given the work we still have to do to establish ourselves in the market, I can say that we are increasingly optimistic about this product line.

Turning to the access business, revenue was down 8% sequentially. General market weakness impacted all of the products in this category. We will still benefit from a competitive edge in our access products; and in Q3, we secured new design wins with PBX and PON equipment makers with our latest-generation SLIC device. We also began shipping our fax modem into a new win at a large multi-function printed OEM during the quarter. We started the year anticipating the access business would remain stable at the 2010 exit rate, and it has performed in line with those expectations. Sequentially, we expect access to be down in Q4.

As you know, the modem [tent] continues to shrink, particularly in set top boxes, but while we expect that revenue stream will decline over time, we believe it will be at a measured pace.

Looking at the business in total, near-term visibility is still a concern; but based on new product cycles, we're currently expecting revenue to be in the range of up 3% to down 3% sequentially. As I mentioned, we are anticipating that access will be down, broadcast will be down slightly, and broad-based will be up. We expect gross margin to stay in the current range. We anticipate operating expenses will increase by about 2% to 3%, reflecting more [tape out] activity in Q4.

On a GAAP basis we're projecting earnings of $0.21 to $0.27. On a non-GAAP basis excluding stock compensation expense, we expect $0.39 to $0.45.

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

Thank you, Necip. Will now open the quest call for question-and-answer session. So that we can accommodate questions from as many people as possible before the market opens, please limit your questions to 1 with 1 follow-up. Operator, please review these question-and-answer instructions for our call participants.

(Operator Instructions) Your first question comes from Anil Doradla.

Your guidance of a negative 3% to 3% sequential clearly is better than the overall semiconductor industry. I think the question I have is, what degree of confidence do you have in this guidance? And can you just give us a sense of what level of conservativeness you've baked in? What would it take for you to perhaps be on the lower end or be worse than your guidance? Just kind of quantify a little bit of that.

And on your handset design win with Samsung, how should we be looking at that? Do you think you're going to be sharing this platform with 3, 4 vendors? Or do you expect to be taking the vast majority of share over the next 12 to 24 months? Thanks a lot.

Anil, Let me start by providing a few data points on what we're seeing with respect to order patterns to give you some comfort about our guidance. The backlog so far quarter to date for the whole Company is slightly ahead of where we were in the third quarter, same time. If you look at our broad-based businesses, and I'll exclude touch controllers from this for the time being to give you a better view of the overall demand environment. The backlog for that product group is also ahead, slightly, of where we were same time last quarter. Our book to bill ratio has steadily improved, and is now hovering around 1 for the last several weeks.

We've seen some improvement in revenues throughout third quarter, particularly in our broadcast and broad-based businesses and that seems to be holding into early fourth quarter. And finally, we're not seeing any unusual activity in terms of push out requests or cancellations. So if you were to look at our order patterns exclusively, you might be tempted to guide the quarter up. But we try to inject some conservatism into the guidance given all the macro concerns, the tempered views that we're hearing from our peers.

And I think ended up with a good balance between the conservatism and what we're seeing in our order patterns to date.

The second question you had was with respect to the Samsung platform. That platform is ours and we're not going to be sharing that particular platform with anyone else.

Thanks a lot.

Craig Ellis.

Thanks for taking the question. Craig Ellis here. Paul, first question for you on the OpEx side, 6% better than my model and down nicely sequentially. Can you help us understand what the factors are that caused OpEx to go down? Is it just proactive management across the board? Or was there anything of a one-time major accrual, reversals, et cetera?

Craig, there really was nothing of a 1-time nature. OpEx is really our best lever for managing our profitability. And as I talked about earlier, the biggest drivers for us were really to manage or reduce our discretionary spending across a number of areas. And there was a lower -- with the lower results, there were certainly lower variable compensation as a part of that.

Okay. And then on the product gross margin side, Necip, with the TV tuner; I think earlier in the year, you had talked about a lower cost or cost down version of the product coming out, and is that on track and what's your view for TV tuner product gross margins as we head into 2012 and on the capacitive touch part, a very nice design win there. But from a gross margin standpoint, how should we think about the gross margin dynamics there relative to the corporate average as we pulled in the ramp of that product for 2012?

Okay. I'll take the video question first. The new generation product started ramping in the third quarter. We talked about a media refresh program that we won with one of our customers. And that particular win was with our latest generation tuner, so that has been ramping for the last couple of months.

A large majority of the wins that we have in place for 2012 are with that new generation device. So I expect most of our shipments to be in that flavor. And while I hesitate to talk about pricing at this juncture, in particular for competitive reasons, we continue to expect the product margin of that device to be better than the prior generation.

On the HI front, I think we're going to refrain from providing growth margins per product line as we usually do; but I'll make the comment that the product margin or the gross margin for that product line doesn't represent an extreme. We've talked about video and timing products in the past as extremes to our gross margin spread. There's nothing particular about HI to point out in that regard.

Thanks, Necip. And then just on the timing side given the strength you're seeing there, is part of that some of these success you're seeing with SpectraLinear or what's accounting for the acceleration in activity and design wins there?

When we provided guidance in July, we were cautious about timing because we didn't want to rely on a strong month of September, and this is indeed what we got from our customers in expiration of orders. So this could certainly continue in to fourth quarter, but this is not what we're baking into our forecast today.

Steven Eliscu.

Yes, thank you. First question is with regards to thinking about growth in both the broad-based business and TV tuner business, given in the TV tuner business, you're going to hit your $60 million; how are you thinking about that business now shaping up for 2012? And in terms of broad-based for your 20% to 30% growth target, how are you thinking about what end of that range you might end up for broad-based in 2012?

Let me start with video. I think with the guidance we are providing, we will hit or slightly surpass the $60 million target we've established. That's in the presence of a non-friendly demand environment for 2011.

Going into 2012, we feel very good about our penetration with the top OEMs. To give you an idea of market share, we believe we are going to be around 20% market share in 2011. And based on traction so far, we expect 2012 share to be over 30%. So we're making clearly progress with top OEMs, and feel good about the competitive positioning in terms of product offering versus our competitors.

On the broad-based side of things, I think given the macro environment, we are going to fall short of our target for the year. I think broad-based business will likely grow in the mid to high teens year-on-year in 2011. That is what our guidance reflects. I think we are going to hit a major milestone for the year, however, hitting $200 million for that product group. And I think this is a solid accomplishment given what we're seeing in macro and what you're hearing from almost all our peers.

Okay. And just a follow-up question. In terms of the end markets, industrial, communications, and consumer for your broad-based products, how are you seeing -- even with limited visibility, how are you seeing trends in those end markets?

I can give you a little bit of perspective related to the past 90 days. Our expectations on the consumer side of things were muted, and we got a little better demand in that in general across all of our products. But we have seen weakness, especially as the quarter progressed, coming particularly from the smaller customers that we typically serve through the distribution channel.

The end markets for those customers are largely varied, and I don't have a good quantitative data point to provide you with. Many of them are in industrial end markets, although not all. So I think the weakness that we've seen as many other companies are reporting are relatively broad-based and not singular to any one end market.

Tore Svanberg.

Hi, thanks, this is Eric in for Tore. I just wanted to ask on the OpEx line, Paul maybe, R&D obviously came in and you talked about some of the reduction in OpEx or maintaining that OpEx line. But given that you guys talk a lot about new product wins and new designs and revenue -- a big portion of your revenues coming from newer products, do you think your R&D is going to be a little bit light to support a lot of that design activity? Maybe if you could just kind of talk a little bit about that?

Well, I would say -- how I would characterize it for say, the coming quarter for instance is that the guidance that we provided of an increase in OpEx in Q4 will be largely reflected in R&D as we have an increased level of tapeout activities. So one of the things we don't do as a Company is we don't -- when we do manage our OpEx, we don't necessarily push out tapeouts or we don't show the design activity. And I think what you see in Q4 is -- or in our Q4 guidance is evidence of that philosophy.

Okay. Thanks. And you talked a little bit about optical communications. We're obviously hearing a lot of broad disruptions for global optical communications supply chain. Are you -- what are you hearing from your customers, and could if you could maybe frame that and maybe talk about the flooding if you have any sort of impact that you're seeing in your business?

From the recent flooding in Thailand at this juncture, we don't anticipate any material impact for our operations. There may be some secondary impact to our business with respect to shortages in other critical components for the equipment we sell our products into, but there is little to no impact to our operations directly from that disaster.

Blayne Curtis.

Good morning. On the guidance, you seemed to indicate that video and touch were up. I was just wondering if you could give us some color on the other moving pieces, if you expect any other segments up; and then what factors get you to the high end and low end of the range?

So let me start with the broad-based. When I talk about this area being up, it is primarily being driven by the touch controller revenue. But as I indicated in response to Neil's question, the rest of the product areas have solid backlog, at least 3 weeks into the quarter as well. So if that trend continues, we might get a little upside from that.

Another area we are seeing some very recent activity is in PON deployment in China. I've alluded to some recent design wins with our SLIC products, and we are seeing some modest upside requests coming in that we're going to try to serve in the quarter. So this might provide a little bit of lift as well in our access business. I think those combined will get us to the higher end of our guidance.

Thanks. And on gross margin, circle back to a prior question, obviously the mix was the big factor in the gross margin being a little bit light in the September quarter. Can you talk about whether you saw progress in the margin in video? And then as you look out to Q4, it seems like the mix would be shifting more to broad-based. But are you seeing -- would you expect the video margin to continue to progress and then kind of just what are the puts and takes to get to that flat margin with the mix changing a little bit more toward broad-based?

I think at this point, the margin impact that we talked about in the beginning of the year due to startup costs, are all behind us. All the cost reductions that were planned were achieved on time. And the ramp of the new generation device is going smoothly so far.

So at this juncture, what dominates the gross margin percentage is really the product mix between various product areas and even within product areas, the mix of products we sell as well as the absolute revenue level. So I don't think there's much to dwell on going forward on the tuner margins alone.

Okay. Thanks.

Srini Pajjuri.

Thank you. Good morning, guys. Necip, on the microcontroller business you said that you saw some weakness at smaller customers in the past couple of quarters. Just wondering if the stabilization or rebound that you're seeing into Q4 is primarily coming from smaller customers, or if this is from any new products?

Well, it's a little bit too early for me to be able to answer that question definitively. We are seeing certain destabilization in order patterns coming across the board, but it's a little bit too early in the quarter to delineate that between the smaller customer base and the rest. I'd like to think that some of this can be linked to the strong design win activity that we've been reporting for the last 3 to 4 quarters. But this is also rather difficult to be able to delineate that with all the changes going on in the overall environment, all the volatility. So I might be able to have a better answer for you by the end of the year.

Okay. Great. And then on the TV tuners side, you said you expect to gain some market share as we head into 2012. I'm just wondering where in the penetration cycle of silicon tuners are we? And also you talked about the opportunity in tier 2 TV market. I'm just wondering how big that market opportunity is going forward?

We stand by the projection we had of silicon tuners representing 50% of the market in 2012. We're going to account for something north of 30%, as I mentioned. Sony continues to use their internal capacitive solution, so that represents a chunk; and I think there will be -- that the rest will be other silicon tuner providers getting some share. I think we're going to continue to enjoy the lion's share of the silicon tuner market for the foreseeable future, however.

And finally, just one clarification, Necip. You saw a little bit of strength on the FM tuner side. If we look at the broadcast business and also access business, how much of that business do you still consider legacy? And how do you see that trending going forward? Thank you.

I think a data point we provided in the past was the aggregation of FM tuners into handsets plus modems into CPE applications. That was about 12% and remained about the same, roughly the same in the third quarter. Over time, that will continue to decline. I think of these 2 pieces, I would expect handset to decline faster compared to CPE modems. I think that overall declines in modems will occur, but at a more measured pace.

Thanks, Necip

Craig Berger.

Hi guys, thanks for taking my question. I just wanted to ask first on the touch products, what is sort of the gross margin profile for that business? And what kind of content are you seeing into a cell phone today? And also, how many more programs or platforms might you be engaged on?

Yes. I tried to answer Craig's question, other Craig's question in that regard too earlier. We're not going to be able to provide gross margin per product line, but we said it doesn't belong to any of the extremes. So it's not going to be a major contributor one way or the other to our gross margin profile.

And we feel good about this platform when at Samsung, I think, establishes our capability and price performance value. We certainly intend to proliferate that inside Samsung as well as with other leading smart phone providers. But at this point, what we can definitively point to is this Galaxy Y platform that we started ramping in Europe. And there are a number of handsets on that platform that we have won.

Can you just help us with the dollar content per phone? And maybe how that compares with market leaders selling it 250 a chip? And then I just have a brief follow-up. Thanks.

No. I'm not going to be able to provide any ASP. I don't think it's in the interest of our business competitively to do so.

And then just a follow-up is gross margins now in the 61s, how do we think about that as we move into 2012? Is that sort of the new baseline here as video becomes a bigger mix to the business?

Craig, this is Paul. How I would characterize our gross margin picture from a long-term basis is that no, this is not a structural change. We're a few basis points below the minimum of where our range is, and we have a lot of confidence. We continue to work hard to get back into that range, and we expect to do that.

Sandy Harrison.

Thanks, guys. Necip, could you talk a little bit and remind us on your TV plan? Clearly going from 20% market share to 30% is a nice move up. How is it you've talked in the past about the model year and so forth. So if you could just remind us in how your 2012 rolls out, and how we could think about in a modeling perspective from this product and growth into the longer term revenue plan?

I think I'm missing out -- what you're asking for is price, which I won't be able to provide, but we will try to give all of you an idea for 2012 for various pieces of the business in January as we typically do. I just wanted to provide this data point in terms of market share gains at this juncture because a large majority of the programs that were up for design wins have been decided upon at this juncture. So we have pretty good visibility into our footprint for 2012.

Of course what also remains to be a question mark is the volumes and the sell-through. Customers are now starting to place orders for a product that will go into 2012 models. So we're going to start shipping some product towards the tail end of this year to our customers for their new year builds. I hope this helps.

Sure. And then coming out another question. In the PON market, you talked about seeing some business in China for that with your SLIC product. Is that coming from market share gains? Is this based upon refresh of platforms from some of those? Or is a competitor -- had a competitor falling down, just trying to understand where this drops in at a time when a lot of other people are talking about some softness in China and perhaps this is some market share on your part?

I think there is some renewed emphasis in China from the government in terms of the PON deployment. So I think there's an increased opportunity for everyone, and we have been able to win some key sockets away from the competitors. So I think it's a combination of both.

Got you. And then another question on Taiwan. You said that a lot of your set top box business, or a lot of your modems and others in set top box business, it's a relatively small piece I guess, close to 6% plus or minus. Do you guys have many set top boxes where you have hard drives in them or not? What's sort of the mix of that set top box business for you guys?

Yes. I know why you are asking the question because of potential shortages in HDD's. I don't have a good figure off the top of my head to tell you what percentage of those satellite set top boxes we sell into our PVRs. We are not yet completed the analysis on whether there's any potential HDD shortage with impact our access business.

But if you quantified it yourself at 6% our revenues, a portion of that might come from PVRs, and there might be a portion of that that's inside the quarter may have component shortages difficulties. So I think incorporated this qualitatively into our guidance in providing a down guidance on access, and that certainly influenced our thinking. But we don't have a quantitative analysis completed at this point.

Great. Thanks for doing that. Just wanted to understand that you had done it. So appreciate it.

Vernon Essi.

Thank you. I don't know if you got into the question along the lines of guidance, but wanted to just revisit the channel inventory. You had I guess a 12 day reduction in the current quarter or the summer quarter you wrapped up. Do you have any thoughts as to whether you expect that level to increase or be flat going into December as you close out?

Vernon, when I think of our channel inventory or our own inventory, I like to think of them together as really the supply picture that we control. And how I would characterize that supply picture, those 2 elements combined is that we'll still stay relatively flat in Q4.

Great. And then I guess just sort of a backwards looking question here on the audio side. You saw obviously strength there, wondering -- it could be a lot of things that probably happened, but anything that stands out, either share gains, third world adoption, or even was there a better than expected sort of consumer possibly, a better than expected consumer selling season the third-quarter. Just if you could elaborate, I would appreciate it.

I think back in July we had a pretty mediocre view of demand, and the upside was driven by a handful of large customers in the quarter spread across multiple applications, ranging from handsets to portable media players to CE.

Okay. That's helpful. Thank you. That's it.

You're welcome.

Your next question comes from Suji De Silva.

Give us an update on where that is now?

So, Suji, you cut out.

I'm sorry. The television channel inventory, in the past you've given us a number. Can you give us an update on where that is today?

Well, I think that excess inventory of roughly 4 weeks by our accounting has now been dealt with. We can tell this not only by what our customers are telling us, but also through the order patterns that we see coming from large customers on our new generation tuners. They are clearly working the inventory off for the current model year, and starting the production later in the year for their 2012 models. Having said that, we still don't know how the holiday period will go, what the sell-through of TVs worldwide will look like, so that remains a question mark. But as far as the inventory glut we referred to 3 months ago, I think that's been dealt with.

Okay. And then just another question on gross margin here. It sounds like into 2012, you're perhaps talking most about the video products and touch, and I'd imagine those are on the lower side of the gross margin relatively. I'm wondering whether those improved to help you get back into your range, or whether there are things on the higher gross margin end that you're excited about into 2012 as well. And if you could highlight a few of those to offset the touch and video, that would be helpful.

When I talked about the growth drivers in '12, over the last couple of quarters, I highlighted a few things. 2 of them you touched on, with the video and HI. But the one you didn't mention is the rest of the broad-based business.

I think we'll continue to see nice growth in that business in 2012, even in a sub-par demand environment. In 2011, that collection of businesses is growing north of 15%, and there's no reason whatsoever why we can't do that in the future. So -- and that collection of products certainly have accretive gross margins.

Last question on touch, you've had a good win here at Samsung. Can you talk about the competitive factors that helped you win that and maybe if your product's targeting certain handset market segments or whether it's broadly targeting the cell phone market? Thank you.

We are broadly targeting the market. We have more in the R&D pipeline as well. I think we are trying to differentiate in the classical Silicon Labs way. We're offering competitive or better performance than what's commercially available at attractive cost points. And that applies squarely on the touch controller as well and that's what Samsung saw in our offering.

Your final question comes from Cody Acree.

Thanks for getting me in. Over the last couple of days, we've had TI and ST Micro make some comments about recent weeks of just over the last recent weeks of improving activity; and it sounds, Necip, like you're seeing similar trends, but you have a little differential in some product cycle standouts. Maybe, can you characterize the difference between what you're seeing from a product cycle improvement driver, and maybe go on a broader basis, just seeing some improving order trends?

Yes. So I tried to delineate that earlier by saying if I remove the HI from the picture, looking at broad-based businesses, the backlog so far in the quarter is slightly ahead of where we were starting third quarter. So that's certainly encouraging. And you're right in pointing out that we have some differentials in the product cycles, notably the touch controller and the TV tuner. But the rest of the business, it appears at this juncture anyway, to at least hold compared to the third quarter. The guidance range we provided attempts to inject some conservatism based on all the tempered views we are hearing from our peers and customers.

Thanks for that color. I guess maybe on that, talking about the draw down of inventories in the channel, obviously OEMs were doing the same thing. Some have made comments of OEMs previously drawing down to some unsustainable levels and now maybe starting to see some order rates improving to get back to matching in consumption. I guess some of this recent improvements, do you feel like some of it is just kind of getting back to normal run rates in demand? Or do you think it's really an in demand issue that's improving?

The 2 are related, Cody, and it's not entirely clear to us if the weakness we've seen or the industry is seeing is due to customers simply trimming inventories, or them adjusting their orders with our suppliers to reflect the new demand environment they see with their customers. The inventory levels were not particularly high going into the third quarter. They were obviously in some cases, trimmed at below what you might call normal levels. But I think customers continue to be rather cautious about their customer demands. So we are not anticipating in the near future them wanting to raise their inventory levels.

And then lastly on the OpEx side, the color in the Q4 is helpful; but as we look into 2012, if we assume that the markets are not improving dramatically, I guess what's the next set of levers or opportunities to continue to be conservative on the OpEx side, or even reduce that, if need be?

Well, I think we've demonstrated in the past our ability to manage discretionary spending in all environments. So I think depending on how the environment plays -- the macro environment plays out in 2012, I'm confident that we can continue to be prudent in terms of our discretionary spending while not sacrificing our opportunities for growth.

Great. Thanks, guys.

All right. Thank you all for joining us this morning. This now concludes today's call.

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