Silicon Laboratories Inc (SLAB) 2011 Q4 法說會逐字稿

Good morning. My name is Christy and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Laboratories fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions) Thank you. I will now turn the conference over to Shannon Pleasant.

Thank you, and good morning. This is Shannon Pleasant, Vice President of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the Company's financial results. This call is being webcasted and will be archived for two weeks.

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 presentations 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 to an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our Business, operating results and financial 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, 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 at 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, Paul Walsh.

Good morning, everyone. Fourth-quarter revenue proved to be a peak for 2011, and a strong ending to the year. Revenue of $126.7 million represented a 6.4% sequential increase, and a 13.2% year-over-year increase.

Business trends were robust throughout the quarter, with new product cycles driving the upside to our guidance. The top-line outperformance fell through to the bottom-line, resulting in impressive non-GAAP earnings per share of $0.49, well ahead of our guidance.

First, I would like to talk about GAAP results, which included approximately $8.9 million in noncash stock compensation charges in $1.3 million in one-time charges for acquisition-related intangibles, and repurposing of a design center into an applications and sales office.

A brief side note on stock compensation. It represented just 7% of revenue in 2011, down from a peak of 10% just a few years ago. Total stock dilution, which has been offset by our share repurchase program was well within our target of 1% to 2%. We've made good on our promise to reduce stock comp as percent of sales and anticipate further progress in 2012.

For the fourth quarter, GAAP gross margin was 60.9%. R&D investment increased $34.7 million, and SG&A was flat at $27.3 million. GAAP operating income of 12% was a 220 basis point improvement over the same period a year ago. The GAAP tax rate was 18.8%, resulting in fully diluted GAAP earnings of $0.29, a 12% sequential increase and a 4% increase year-on-year.

Turning to our non-GAAP results, all of our three businesses performed better than anticipated, with access flat, broadcast up slightly, and broad-based up double-digits. Gross margin met our expectations at 61.2%. Mix will continue to be the primary driver behind gross margin fluctuations around our target model of 62% or better, with video causing downward pressure and broad based notably timing providing upward pressure.

Operating expenses came in as expected at $52 million. R&D increased to $29.6 million, due primarily to increased tapeout activity, including two at 55 nanometers. SG&A remained flat at $22.5 million.

SG&A continues to remain at levels not seen since the first quarter of 2010. In Q1, we're expecting the typical seasonal increases in payroll taxes and salaries, which will result in about a 4% sequential increase in operating expenses. Operating income improved to 20.1% of revenue, and net income improved to 16.9% of revenue. The Q4 tax rate was 17.8%.

On the topic of taxes, the federal R&D tax credit expired on December 31. Until this credit is reinstated, we expect our tax rate to increase. The non-GAAP tax rate will be about 18% beginning in Q1, which translates to a $0.02 EPS impact for the quarter.

Solid operational results afforded us significant leverage on the bottom-line. The resulting earnings per share of $0.49 represented an 11.4% sequential increase, well above our guidance. Diluted share count ended the year at 43.4 million shares, a decrease of more than 2 million shares from a year ago.

I'm especially pleased with the management of our inventory and the health of our balance sheet throughout 2011. In Q4, accounts receivable decreased to $55.4 million, or 39 days sales outstanding. We continue to have no known collection or bad debt problems.

Inventory was well-managed again, even with various new product ramps and limited end-market visibility. We ended the quarter down sequentially at $34.8 million, or 5.7 turns. This is a meaningful improvement from 4.8 turns in Q3. Channel inventory ended at a lean 43 days, while the balance declined about 12%.

Once again, we generated strong operation cash flow and ended 2011 with $325 million. This is down about $60 million from 2010, but inclusive of $110 million in share repurchases and an acquisition executed over the course of the year. We have an open share repurchase authorization of $50 million through April and plan to continue to be opportunistic in the market during that timeframe.

So in summary, we ended 2011 on a strong note, with good revenue momentum, propelling even stronger earnings performance by the fourth quarter. Operating leverage remains a key component of our strategy, as we achieve higher revenue levels and control expenses to maximize the bottom-line performance. Necip?

Thanks, Paul. 2011 represented an important transition for Silicon Labs. While admitted the lacking in terms of revenue growth, we did achieve a number of key milestones. We put the secular decline in our handset FM and set top box modem product behind us, marking the final chapter of our multi-year transformation into a well-diversified growth Business.

We are no longer a Company driven by any one product, technology, or end market. We have established market share at cross communications, consumer, and industrial markets. We are investing to expand these market share positions, increase our content in the systems we are designed into, and gain a foot hold in new markets.

So despite industry uncertainty we have a lot to look forward to in 2012. We have both the diversity to weather macro weakness and the product cycles to get us back into a mode of outperforming our peers.

Normally at this time in the year, I like to give annual growth targets for our product line, but visibility remains limited. Customer sentiment is still very cautious and lead times are relatively short. So, while I'm confident that we can do significantly better than the 2% to 3% growth forecasted for our industry in 2012, the uncertainty around the magnitude and duration of the economic slowdown makes it difficult to provide absolute ranges.

I'll focus our forward-looking comments on Q1, and where I can, I will offer color on full-year trends. Business continued to improve throughout Q4, with upside driven by new product ramps in video and touch controllers, as well as better than anticipated demand for our SLIC and many of our broad-based products. The access business ended the year at 23% of revenue.

Modem revenue from set top boxes was about 6% of total revenue as we exited the year, and is likely to decline at a measured pace through 2012. ProSLICs, on the other hand, provided modest upside in Q4 due to increased investments in China in passive optical networks. As a result, the access business was about flat for the fourth quarter, better than expected.

We think the robustness in ProSLIC will continue into Q1, potentially offsetting typical seasonality. Similar to what we've seen in 2011, I expect the access business to remain steady at the current levels throughout 2012, with SLIC growth compensating for more than the decline.

Broadcast products represented 34% of revenue in 2011 and posted a mid-single-digit growth rate for the year, despite head winds from FM tuners sold into handsets. Growth in AM/FM tuners and dominance in silicon TV tuners were behind the solid year-end results.

AM/FM products were up nearly 20% in 2011, achieving another record in terms of revenue. Audio represented about 20% of our total revenue and non-handset radio revenue now makes up about 75% of the audio total. We have continued to diversify our portfolio to address more applications, while effectively managing increased competition in Asia through licensing agreements.

Most exciting is the success we've had penetrating Tier 1 automotive accounts. We have a full portfolio of low to high-end automotive radio offerings, including the new high-performance HD-capable radio we launched last quarter. Led by our radio design wins, we're expecting automotive to finally become a meaningful piece of the Company revenue starting mid-2012, as production of 2013 car models begins to ramp. This higher-margin long-lifecycle business is a strategic addition to our portfolio and will help us continue to grow the audio business nicely over the long-term.

Turning to video, we had a $60 million target for 2011 and I'm pleased to report that with the upside in Q4, video revenue totaled 13% of revenue for the year, exceeding our goal. We're expecting video to remain steady in Q1, as new customer programs offset seasonal softness in TVs. We expect to resume growth in Q2, as those models fully ramp into production.

As you know, we are not relying on TV market growth to drive this business. We're expecting penetration of silicon tuners into TVs to rise to about 50% in 2012. And based on the design wins we have already secured, we think we can increase our video share from about 20% of all TVs in 2011 to at least 30% in 2012.

Comparatively, we're enjoying a solid lead and move forward from a position of strength. Our third generation of devices featuring the industry's broader selection of tuners covering every flavor from hybrid to digital-only devices, gained the lion's share of 2012 design wins.

Customers with low penetration of silicon tuners in 2011 are coming on strong this year. We are also sampling our fourth-generation tuners now for 2013 designs. These new products offer further optimization in costs and performance. And we are focusing our energy on cementing our position at Tier 1 customers.

From an R&D standpoint, while our competitors play catchup, we are further segmenting our video product portfolio to enable us to penetrate the second Tier TV makers and begin our attack on non-TV applications. So while video remains a very competitive market, we benefit from experience, track record, and continued investments to maintain our leadership position and will do so profitably. In total, we are expecting broadcast will be down in Q1, due mostly to seasonal declines in audio.

Our broad-based business was up nearly 20% in 2011 and represented 42% of revenue. To my earlier point about the diversification of the Business, our broad-based products include mixed signal MCUs, timing devices, human interface controllers and sensors, wireless receivers and isolation products. This group was only 20% of revenue back in 2007 and 35% of revenue in 2010. I view this strong growth as a direct corollary to our success in diversification.

In the fourth quarter, broad-based revenue was up more than 10% sequentially to a new record, with upside driven by the aggressive ramp of our touch controller at Samsung. Handsets with our touch sensors are now shipping into the EU, China, India, and Australia.

Human interface products exceeded 5% of our revenue in Q4, making it meaningful, but still very small relative to our incumbent peers. We were successful in securing additional design wins at Samsung during the quarter. In 2012, we expect Samsung will dominate our tax revenue and we are focused on winning new models in the coming months to expand our Business there, while working to penetrate additional handset makers.

Our MCU business held about flat in the fourth quarter, a good result given continued end-market weakness. New product development activity remains high. We introduced our latest generation of 8-bit devices, a family of very low-power MCUs with integrated wireless capability. The new MCUs extend our lead in the low-power segment, offering 40% less system current draw and 65% longer battery life than the competition.

Designing low-power wireless MCUs is challenging for our non-mixed signal MCU competitors and we've seen major design win traction and [mitigate] applications as a result. Isolation and wireless products were also behind the strong sequential growth of the broad-based business in Q4. Program ramps at large customers were contributors to this strength in isolation, while green energy remains the driver behind the wireless products.

As the Internet of Things moves from concept to reality, our embedded products both current and on the road map, uniquely position us to offer a solution that often encompasses the most critical functions of customer systems. Life-style electronics in particular, like the Nest Lab thermostat that created so much buzz at CES, are a major target of our sales and marketing efforts, as we leverage low-power MCUs, wireless transceivers, isolators and sensors to win sockets.

The final leg of the broad-based product group is timing. Timing represented about 14% of revenue in 2011 and was up more than 30% versus 2010, a terrific result. The business slowed in the fourth quarter and was down sequentially, as telecom customers continued to revise down their forecasts. Our oscillator products, which are slightly less levered to telecom than our clocks, achieved record revenue in Q4, but the pressure on telecom equipment impacted the overall rate of growth in this product line.

However, we see this as a short-term issue. The most recent reports suggest telecom operators are moving aggressively to 100-G deployments which feeds right into the strength of our high-end timing devices. Operators are planning to deploy higher-speed optical equipment to lower the cost per bit while improving performance and expanding capacity. We expect the combination of a telecom snapback and continued penetration into non-telecom customers to result in another solid growth year for timing in 2012.

In total, we are expecting the broad-based products to be up in Q1. For the year, we expect this business to improve sequentially each quarter. This expectation is driven by the 40% year-over-year growth in design wins in 2011, as well as the inventory replenishment cycle we are expecting later in the year. Looking ahead to Q1, we are currently expecting revenue to be in the range of $120 million to $125 million.

As I mentioned, we are anticipating that broadcast will be down seasonally. Access will be about flat. And broad-base will be up. We expect gross margins to stay in the current range. We anticipate operating expenses will be up seasonally by about 4%. On a GAAP basis, we are projecting earnings of $0.20 to $0.24. On a non-GAAP basis, excluding stock compensation expense, we expect $0.38 to $0.42. We would now like to take your questions.

Thank you, Necip. We'll now open the call for the question and answer session. So that we can accommodate questions from as many people as people 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) Anil Doradla, William Blair.

Congrats on the great quarter. Couple of questions. Necip, clearly the TV tuners and human interface are the star products and we expect these to ramp over the next several quarters. But, given that the competitive nature of these, how should we be looking at the gross margins of both these two end products combined? There's an element where you guys improve your yields on that and then there's market pressure. If you could give some color on that, that would be great. Thanks.

Sure. I think we have indicated in the past that the touch controller product we are ramping is not an outlier in terms of gross margin. So, we do not anticipate that product line to have an impact on the gross margins due to product mix, and we will certainly drive an aggressive cost reduction road map like we do for all our verticals. On the video tuner, as you mentioned, the new generation tuner does carry a better product margin, and we are ramping it strongly this quarter. So, by the time we get to the end of this quarter, it should reach steady state margins from a yield and test time point of view. We have finalized our price negotiations with our customers for 2012 and the expectation that we had this product will carry slightly better product margins held through.

So, from a pricing point of view, your 2012 pricing is fixed, is that what you're seeing on these products?

Yes. Yes, it is.

Okay, and you said I think the human interface was at 5% of Q4. Why should we not be thinking that you'll exit 2012 with 10% plus sales in human interface?

So, the Galaxy Y platform that we started ramping in Q4 ramped very strongly for us and is continuing its ascent into Q1, coupled with seasonal FX. I, also, just mentioned that we have won a couple more follow-on programs at Samsung. These will ramp, one of them late 1Q and the other in the second quarter. So, I think at this juncture, we have pretty good visibility into certainly the first half. This product appears to have very short design-in cycles. So, we for the next four to six months will be competing for second half models, which can change the outcome for the year.

So, I think what we would like the analyst community to do is to model our revenues based on what we want. Come midyear, we'll give you a tally of all the other wins we have accumulated both at Samsung and other customers, and this will have some constructive FX on the second half revenues.

Great. Thank you very much.

Craig Ellis, Caris & Company.

Congratulations on the fourth quarter revenues. Necip, you mentioned in the prepared remarks that you expect a telecommunications spending snapback. When do you expect to start seeing that and how much does that contribute to your confidence and timing growth this year versus just propagation of solutions into a broad array of platforms in your customer base?

So, Craig, in 2011, even if you exclude the contributions from the SpectraLinear acquisition, the timing business grew very nicely, in spite of telecom weakness that lasted pretty much most of the year. So, those improvements came due to market share gains, and I expect those gains to continue into 2012 regardless of a snapback in telecom. I think that snapback is overdue. I think there are a lot of dynamics that would require a higher level of investment and telecom spend. When this will turn on, I don't know, but in the past when we've had durations like this, the snapback tended to be rather sharp. So, we're expecting this to occur sometime in the year, but don't have good visibility as to when that might occur.

That's helpful. Then, a follow-up question on the human interface. A company at CES announced a capability to integrate some capacitive touch processing in their application processor. Do you see that as a competitive threat or as a point of pricing leverage by OEMs as some of the functionality that would typically be done in a more discreet solution? Can be moved over into an APU like we've seen previously, with the way Apple with some of their capacitive touch?

I must admit I don't know enough about that product to give a definite answer. I think one of our competitors made a remark that this may only have a portion of the touch controller functionality, something like a wakeup touch rather than the full functionality. But I don't know firsthand to verify that. But either way, I think we have already strong incumbent competitors in the space that we are working hard to gain share from. So, before I start worrying about new entrants and that integration threat, our first concern is really to take share away from the two or three strong incumbents. I think that's where our focus is going to be in all of 2012.

Regarding your comments on a broad array [design wins] at Samsung, are you finding that you're moving up in their product line from the Y series, or are those additional design wins in other Y series products?

These are additional wins in low end smartphones platforms for Samsung.

Thanks, Necip.

Srini Pajjuri, CLSA Securities.

Necip, first, how big is whatever you consider the legacy business? Also, where do you see that going by the end of this year?

So, both modems, set-top box modems, and FM tuners into handsets were approximately 5% of total revenue each. I think we'll see a measured decline in set-top box modems throughout the year. That decline as I mentioned will be made up by improvements in SLICs. So, access overall I think is going to remain steady. On the handset FM side of things, I would have said a quarter or two ago that, this revenue will likely go to zero by the end of this year. Our view now has changed and we see that revenue could take a step down in Q1 seasonally, and stay relatively flat to slightly down for the remainder of the year.

Okay, great. Quickly on touch, you said you are winning in the low end. Can you help us understand the competitive landscape in the lower end. Also, why do you think you are winning, and who in particular are you replacing there?

Well, I think similar to other products we've introduced at Samsung, this particular product carries with it a high level of performance at very attractive cost bases. We believe based on the information we have about competitive landscape, our touch controllers have lowest die size by a significant margin. So, we operate from a very good cost basis having designed this with a different mentality than some of our other competitors coming strictly from an MCU background. This is an area that continues to evolve. We'll continue to drive the road map both in terms of cost reduction and performance enhancements. So, the customer sees the value performance for the costs that we can offer the part at, and that's been a classic Silicon Labs value proposition.

Okay, great. Then finally, maybe for Paul. Paul, as the DTV business grows in unit terms, you're expecting almost 50% growth this year. How should we think about gross margins? I guess my question is, can they continue to stay about 60% levels as you see this growth? Thank you.

Sure, Srini. This is how I would characterize gross margin both in the near-term and the long-term. In the near-term, it's going to be mostly influenced by product mix between video and growth in broad-based. As we progress towards the long-term, well the medium to long-term, the broad-base business will certainly outpace the growth of any other business. That will provide some upward pressure to gross margin. So, for the guidance we gave for this quarter here, this basically assumes a relative mix that's similar to what we saw in Q4.

Thank you.

Terrence Whalen, Citi.

This is [Tim] speaking for Terrence. First, congratulations on the strong quarter. I have a quick follow-up on the video gross margin. So, now you're talking about third generation and fourth generation. Are we expecting a similar margin compared to the second generation? When should we expect the video margin could support average broadcast margin?

This is Paul. With each generation of TV tuner, we have made progress in gross margin, as we've discussed numerous times. But what we've also said is that, by the nature of this, of the end market, that this product is not -- will not be -- will not achieve Corporate gross margin on a long-term basis.

Should we expect it to support not Corporate average but about the broadcast average?

What we've described in the past is that, we generally try to avoid giving specific product line gross margin or even business unit gross margin percentages. We've typically described what our outliers are and what the impact of those have on the corporate gross margin. So, we've spent a lot of time talking about video and we've spent time talking about the impact that timing has. Those are really the two outliers. I really, would rather refrain from getting into specifics about the broadcast gross margin efforts.

Sure, understood. My follow-up is regarding the timing. Timing is the bright spot on the year and we expect it to continue to grow, so this question is for Necip. Is that because -- is that driven by increasing [count win] or is it driven by share gains?

It's driven by share gains. I alluded to significant increase in our design win count in 2011 over 2010 to the tune of about 40%. Timing certainly contributed to that performance, and that is consistent -- at least consistent with prior year performances in terms of design win number increase. So, there's a continued increase in market share with both existing products. As we bring new product to the market, we are, also, able to win additional sockets in the systems that we have been serving at these customers. So, there is some of proliferation, some of content increase, but it all ends up being share gains. So, any improvement in telecom spend in 2012, obviously, will positively modulate that growth rate.

All right. Thank you.

Tore Svanberg, Stifel Nicolaus.

Congratulations on the results. First question, could you talk a little bit about the linearity in the quarter, both in terms of bookings and billings, please?

Sure. As I alluded to, Tore, the Business improved throughout the quarter. I would say the shipments were relatively linear and that's a little surprising given December is usually weaker, but not in 2011. We had very good turns business with relatively short lead times. The bookings also, have improved measurably throughout Q4 and into January. The bookings in December were measurably better than November. In January, three weeks, so, far, the bookings are stronger yet. So, things are certainly headed in the right direction. Our book to bill at this point is right around 1. So, we've seen good improvement in order trends from the customers.

That's very helpful. Thank you. As a follow-up, the timing markets are getting pretty interesting in the sense that, I think there's a lot of players that are viewing that area -- several different, some of the companies. From your perspective, I know you've made a lot of acquisitions there. Do you feel like you have all of the IP and all the blocks there now? Or are there still other things that you can add to the portfolio?

I think from a technology and product portfolio point of view, we are in good shape following the two acquisitions we have made. The technology acquisition with MEMS, resulting in our first commercial product that we are starting to sample relatively soon, so the commercialization of the first product with MEMS on CMOS is right around the corner. So, we are excited about that.

We have also, far more developments in the R&D pipeline for timing than we've ever had. So, those new products will come to market, some using the MEMS technology, some just building on the technology that we've had, some combining the IP we acquired from SpectraLinear with ours, are all going to add to the portfolio. So, I think in a year's time we'll have a far more comprehensive portfolio in timing than we do today.

Very good, thanks. Just one very quick last one. When you talk about video, you said you'll be attacking some non TV markets. I assume that's going to be set-top box. When should we start to see some revenue from that area?

Well, that was an R&D statement. So, we are directing some of our R&D dollars to be able to get a share in those markets, So, that won't be in the revenue in 2012, Tore.

Great. Appreciate it. Thank you very much.

Alex Gauna, JMP Securities.

Good morning, and let me echo my congratulations. I wanted to ask quickly on the ProSLIC side, you mentioned a tailwind there, particularly in China. Help us understand the magnitude of that opportunity, your confidence in it -- especially in light of some peers that are talking about diminished China demand, have you seen any wrinkles there? Lastly, there's been some M&A in that space and I'm wondering if you're seeing any signs of being able to take advantage of some of the dislocations from that merger?

Yes, I can give you some color. We have seen a modest upside in Q4. We actually left the quarter with some delinquencies to customer requests that we are supporting this quarter. That strength in bookings continues. So, we will see an increase in our SLIC revenues in Q1 for sure. I think we have visibility for the second quarter as well. So, we have won some significant programs with some of the customers in China that we have supported historically. I think this is an opportunity for all the suppliers into this market, but we might have won the lion's share of that growth. That's perhaps why you're seeing it in our results more than others. We have pretty good confidence, pretty good visibility into this opportunity, and feel good about it.

Then a follow-up to the video tuner side. As you progress, you obviously have a good road map from a unit growth perspective, what about tangential or integration opportunities, the functionality on the DMOD side? Then, maybe on the digital-only side, especially with the tuner count proliferation we're seeing in so many devices, is there an opportunity there for you?

Yes, there is. Today we are able to offer a wide area of tuners from digital-only tuners to hybrid tuners, with and without analog DMOD capabilities. So, depending on the partitioning decisions that our customers make, we are able to serve their needs with ping compatible and firmware compatible tuner devices, that the customers like that flexibility. So, there is certainly opportunity, and we have been winning the secondary tuner sockets along with the primary tuner sockets with our customers. With respect to increasing content, we do have a number of D modulators, and there's one or two more on the way that we can attach to our tuners. In some cases, that could be an integrated form. The integrated form seems to be getting more traction in set-top boxes than in TVs today, but we have the IP and the products to offer. So, there's plenty of opportunity I think to increase our content there.

Thanks very much.

Craig Berger, FBR Capital Markets.

Can you help us understand in MCU your growth path forward there? Is it new product families, and also, are you addressing the 32-bit market or playing only in the 8-bit?

Yes, I'll throw in some color there, Craig. So, to start with in 4Q, the MCU revenue was stable, just about flat. I think compared to our peers, that's a very good outcome. If you look under the hood in the MCU product line, you see a number of families achieving record revenue in 4Q. Our small footprint MCUs, our low power MCUs, our wireless MCUs all have had record revenues in Q4, in spite of a difficult demand environment. So, I think this is telling in that those products groups will drive our growth in MCU for sometime to come.

Yes, we are investing in 32-bit, as a matter of fact we have been sampling our first generation product to a number of alpha customers for the last several months and stay tuned for an official launch in the not-too-distant future.

Great, and then just as a follow-up on that, can you help us understand on operating expense spending for the year what the plan is there and what the high and low thresholds might be as we move through the year? Thank you.

Sure, Craig. This is Paul. As we noted in Q1, we'll see our typical seasonal uptick, which we highlighted to be about 4% sequentially. As the year progresses, things will largely moderate throughout the year and the major fluctuations that you would see throughout the year will be driven either through variable compensation changes, depending on the performance of the business, or modulations and tapeouts. Those would be the two primary drivers. At this time until we surpass record revenue levels, we're not anticipating any significant or fundamental changes in investment.

I see. Okay. Thank you so much. Good luck.

Vernon Essi, Needham & Company.

Necip, I was wondering if you could revisit, maybe outline the comments you made about the automotive market. Just give us some perspective on how you're tackling -- I guess that from a sales channel perspective. Maybe, potentially what your market share might look like going into 2013, and how that's going to grow?

Okay. Currently our automotive revenues are in the low single-digit as percent of our total revenue, and we have been going after this market for a number of years. As you all know, the gestation period in this segment is several years long, particularly with our audio products as the leader of the pack. We have seen very good traction with those products going back to 2009 and 2010 timeframe. So, some of the design wins that we have won back then are now coming to fruition this year with 2013 car models. We are engaged with some of the -- several of the leading car radio makers in all three geographies. I do expect that the automotive audio revenue will show a nice step up starting in the second half. We also, sell our isolators and MCUs and wireless devices into automotive. So, all put together, we are probably looking at a mid single-digit type of contribution of our total revenues in automotive exiting this year. That will certainly increase based on the visibility that we have into the following two years.

So, it's fair to say that you've seen somewhat of an inflection, I suppose on design wins in 2012 production models -- or 2013 I guess it would be production models.

Yes, exactly.

Vernon this is Paul, I would just like to add on to that. Automotive is a great example of one of these broad-based businesses that we've been investing in for a number of years. What's attractive to it, certainly is probably somewhat obvious in that, they don't have a real long lifecycle for us and really prove to be very profitable from a gross margin standpoint.

Okay, and just as my follow-on, small point here. Necip, earlier in your prepared comments, I think or somewhere along the lines, you had talked about inventory replenishment at some point in 2012. I didn't know if you were referring to any timeframe around that or if you could just give us some color. We're all trying to find out what the broader end market looks like from a demand perspective.

Sure. I'll attempt to provide my perspective on this. I think there's plenty of evidence, anecdotal or otherwise that for the last six months or so. The customers have been reducing their inventory levels, becoming more cautious for the overall end-user demand. We see that in the level of inventory that they carry now, that are very lean. We see that looking at our distributors and customer inventories, and I think you hear the same things from our peers -- larger peers who serve more number of customers than we do.

I think the phase we are in now -- and this is a little bit of conjecturing on my part, is a phase where the customers are neither reducing nor replenishing their inventories. I don't think they can afford to reduce their inventories any further and we see that from their ordering patterns, where they attempt to expedite orders and shorten lead times. So, ultimately this is going to lead to the next phase of replenishing the customers becoming a little more comfortable with their inventory levels and start investing in their inventories. Whether that will happen in the next 90 days, in second quarter, midyear, I don't know. But this is invariably going to be the next phase.

Okay. Thank you very much.

Suji De Silva, ThinkEquity.

Nice job on the quarter. So, the Samsung wins that are follow-ups to the Y, can you talk about whether those are expected to be higher volumes, similar volumes, or lower volumes to the Y program?

These are lower volume follow-on [stay with it] programs, if you will.

Okay. Do you expect to have more than two or three additional customers exiting '12 versus Samsung? Is that the thinking for the touch products?

Well, beyond working hard to expand our footprint at Samsung, we are also, engaged with a number of other customers. I would say that we are making good progress with some emerging Asian smartphones OEMs, but I don't have any design wins to report just yet.

Great, and then on digital television, seems like you're having faster than typical iterations on the products and revs, their fourth generations. Can you explain what's behind the cadence of that?

So, the TVs, for the benefit of everyone on the call, have an annual model year design cycle. So, the decisions are made on an annual basis, and they start ramping in November, December, January timeframe for the new model year. So, you need to have the product ready significantly ahead of that timeframe for them to carry their evaluation and so forth. So, we are on a more or less an annual cycle in terms of our product and we've been able to keep up with that. Occasionally, there are some refreshers that take place in the middle of the year, but in the grand scheme of things, these are relatively small. We have benefited from those refreshers occasionally, but it does follow an annual cycle in general and this is what we intend to keep up with.

Last question, you had talked about a target range of 62% to 65%. Historically for gross margins, now I think you said above 62% is the long-term target. Is that a change in language, is that how we should be thinking about, or is the mid 60%s still an achievable level? Thanks.

Well, I think earlier in the call I had mentioned that there's a way for us to view gross margin in the near term as really, as a function of the product mix in the near term. So, it will hover around based on whether video or broad-based growth out paces the other one. I think long-term, as the broad-based business becomes even a larger portion of the Company, that will provide a significant upward pressure to get us back into the range of 62% to 65%.

Thanks, Paul.

Sandy Harrison, Wunderlich Securities.

Just a couple quick questions. As far as just for clarity, Necip, you said that the booking or the book to bill, so far in the quarter's looking somewhere around close to 1 for January. You've talked a little bit about seeing quote, unquote snapback in the comp space. Without maybe getting too specific, as you look into your bookings for Q1, is comp part of that? Is that giving you some level of comfort to seeing a snapback, or is it a broad-based bookings trend that you're talking about?

Okay. I should clarify. When I talked about book to bill I look at the past 13 weeks -- the 13-week moving average that I quote as being close to 1. So, the bookings in January probably -- certainly stronger than that average. So, things are moving in the right direction. I didn't mean to say that there's actually a snapback taking place in telecom. We're actually not factoring any of that in, certainly in 1Q. It is within our expectations for the year, but in our guidance for 1Q, we have made no assumptions of a telecom snapback, neither for any type of inventory replenishment to take place.

Great, and then just another one of the products that you talked about in your prepared remarks, your low power wireless, and you talked a little bit about the Internet of Things and your participation. Could you elaborate a little bit more on that? Are you participating in the NFC movement, or Near Field Communications? On your Internet of Things, how do you all participate in that? Are you the link between the things and getting online? Just if you could fill in some gaps there. Sounds like an interesting market.

Yes, thanks for asking the question, because clearly things like video tuners and HI are grabbing the headlines. But some of our emerging product lines in our embedded mixed signal business, like wireless and isolators have been doing quite well for us, very good, very strong sequential growth in Q4. We are looking at a very strong backlog going into Q1 in these product lines, also. Isolation in general is in addition to serving the traditional plasma TV space is also serving solar and industrial. On the wireless side, which is the crux of your question, this is being driven by both green energy, and lifestyle electronics, and home security applications. With respect to Internet of Things, in particular if you think about the nodes. You need a sensor, you need some smarts in MCU, and you need a capability to transmit that information in a low power fashion to a sensor in the home. So, a wireless capability.

We have all of these pieces. We have the wireless capability. We have MCU. We have the sensor capability that is consistent with CMOS. So, that lends itself to an integrated solution, a low power integrated solution, and this is what our vision is, being able to bring all these technologies in a single product.

Great. Thanks for that. With that, I'll quit while I'm ahead.

I will now turn the conference back over to Ms. Pleasant for any closing remarks.

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