Semtech Corp (SMTC) 2011 Q1 法說會逐字稿

Good afternoon. My name is Chrissie and I will be your conference Operator today. At this time I would like to welcome everyone to the Semtech Corporation Q1 FY '11 earnings release 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, Linda Brewton, you may begin your conference.

Thank you, Chrissie. Welcome to Semtech's fiscal year 2011 first quarter conference call. I'm Linda Brewton, Semtech's Manager of Investor Relations. I will be assuming investor relations responsibilities from Chris Rogers who is now dedicated full time to managing the financial planning and analysis functions here at Semtech.. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results for the quarter ended May 2, 2010, was issued after the market closed today, and is available on our website at at www.Semtech.com.

Today's call will include forward-looking statements that include risks and uncertainties that could actual results to differ materially from the results anticipated in these statements. For a more detailed discussion of these risks and uncertainties please review the Safe Harbor statement included in today's press release as well as the other risk factors section of our most recent periodic report on Form 10-K filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only. Semtech undertakes no obligation to update the information on this call should facts or circumstances change.

During the call we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principals. A discussion of why the management team considers non-GAAP information useful, along with detailed reconciliations between GAAP and non-GAAP results are included in today's press release.

With that I will now turn the call over to Semtech's Chief Financial Officer Emeka Chukwu.

Thank you, Linda. Good afternoon, everyone. Revenues for the first quarter of fiscal 2011 were a record $102 million. A 20% sequential increase and up 70% from the same quarter last year. The growth was broad based as all regionals, product groups and end markets grew. Semtech's organic businesses contributed approximately $89 million, representing a sequential growth of 12%. And SMI contributed approximately $13 million.

In Q1 58% of our revenues were derived from customers in Asia, 26% from North America, and 16% from Europe. Sales in Asia grew 22% sequentially driven mostly by shipments of products for wireless and optical communication infrastructure, smartphones, digital televisions and computer peripherals. North America grew 20% driven mostly by products for various industrial applications including smart mainstream applications. Europe grew 14% driven mostly by products for industrial and medical applications. Direct sales represented approximately 53% of revenue, while distribution made up 47%. Bookings were up 48% sequentially in Q1 driving a book-to-bill well over 1 for the quarter. Bookings were up in all end markets. The communications and industrial bookings were very strong driven by communication infrastructure, new design wins for various industrial applications and the recovering industrial market. Net turns orders accounted for 43% of shipments during the quarter.

Our GAAP net income for the quarter was $10.8 million or $0.17 per share, up from net income of $4.9 million or $0.08 per share for the same quarter last year, and a net income of $9.5 million or $0.15 per share for the fourth quarter of 2010. Our current quarter GAAP results include equity based compensation expense of $8.3 million or 8% of revenue. This is an increase of approximately $2.2 million from the fourth quarter of fiscal 2010, reflecting the full quarter impact of equity awards made to SMI employees and new executive equity awards. In Q2 fiscal year 2011 equity compensation expense is expected to decrease to $6.6 million due to the final vesting of certain awards. The Q2 expense will break down as follows. $500,000 in manufacturing, $4.6 million in SG&A, and $1.5 million in R&D. In Q1 stock option related legal expenses were $1.6 million. We expect stock option legal expenses of approximately $1.2 million in Q2 of fiscal 2011. Amortization of acquired intangibles was $2.4 million in Q1, up from $1.4 million last quarter, reflecting a full quarter impact of the SMI acquisition. We expect amortization of acquired intangibles of $2.5 million in Q2.

GAAP gross margin for Q1 of fiscal 2011 was sequentially up by 210 basis points to 56%. This increase in gross margin was due to a higher mix of communication and industrial revenue, increase in our power management's new product revenue and the benefits of higher manufacturing volume. These benefits were offset by a $2.3 million amortization of fair value adjustment related to acquired SMI inventory. We expect our Q2 GAAP gross margin to be up approximately 230 basis points reflecting the final amortization or the fair value adjustment for acquired SMI inventory in Q1. Benefits of increased manufacturing volume offset by higher mix of computing and consumer revenue. GAAP SG&A expenses were $26.4 million for the quarter or 25.9% of revenue, compared to $25.2 million or 29.7% of revenue in Q4. This increase reflects the full quarter impact of the addition of SMI and expenses associated with higher revenue. In Q2 of fiscal 2011, we expect a decline in GAAP SG&A expenses of approximately $1.3 million to $1.8 million due to lower equity compensation and lower stock option related legal expenses. These lower expenses will be partially offset by higher selling expenses.

GAAP research and development expenses were $15.3 million for the quarter or 15% of revenue, compared to $13.7 million or 16.1% of revenue in Q4. The increase reflects the full quarter impact of the SMI acquisition and higher new product expenses. We expect Q2 GAAP R&D to be up approximately $1 million to $1.6 million due to investments in future technologies and additional head count. These additional expenses would be somewhat upset by a lower equity compensation expense. Interest and other income was $200,000 in Q1 compared to $300,000 in the fourth quarter of fiscal 2010. In Q2 of fiscal 2011 we expect interest and other income of approximately $200,000 as interest risks remain very low.

Our GAAP tax rate in Q1 was a provision of $18.1 million compared to a benefit of 64% in Q4. The Q4 tax rate reflected the benefit of foreign exchange losses in our Swiss operations, the release of reserves for certain tax positions and other discrete items. We expect our GAAP tax rate for the remainder of the year to be approximately 18%. The diluted share count for Q1 was 63.2 million shares. We expect fully diluted share count of 63.5 million to 64 million shares in Q2.

On a non-GAAP basis, excluding the impact of equity compensation, amortization of acquired intangibles, stock option related legal expenses, transaction and integration related expenses, restructuring expenses and certain insurance recoveries, net income was $22 million or $0.35 per diluted share for the first quarter of fiscal 2011. Net income for the same quarter last year was $9.2 million or $0.15 per diluted share. For the fourth quarter of 2010 net income was $18.9 million or $0.30 per diluted share. We expect Q2 non-GAAP net income of $0.37 to $0.39 per diluted share.

Non-GAAP gross margin for Q1 was 58.8%, a 220 basis-point improvement from the fourth quarter of fiscal year 2010 and a 380 basis point improvement from the first quarter of 2010. We expect non-GAAP gross margin in Q2 fiscal 2011 to be approximately flat. Non-GAAP SG&A expenses were $19.1 million for the quarter or 18.8% of revenue, compared to $16.9 million or 19.9% of revenue in the fourth quarter of fiscal 2010. We expect Q2 non-GAAP SG&A to be up approximately $500,000 due to higher selling costs. Non-GAAP research and development expenses were $13.1 million for the quarter, or 12.9% of revenue versus $11.8 million or 13.9% of revenue in Q4. We expect Q2 non-GAAP R&D to be up approximately $1.7 million to $2.3 million. The company's non-GAAP effective tax rate for Q1 was 20.8%, up from the 4.5% in Q4 of fiscal '10. We expect our non-GAAP tax rate for the remainder of fiscal year 2011 to be approximately 21%.

Moving on to the balance sheet. We ended the quarter with approximately $171 million of cash and investments, compared to $162 million at the end of the fourth quarter of fiscal year 2010. In Q1 no repurchases were made under the 2008 stock repurchase program. We have $15 million left under the program. The Company spent approximately $4.5 million on property, plant and equipment in Q1. Depreciation for the first quarter was approximately $1.5 million. In Q2 we expect capital spending to be approximately $6 million to support the ramp-up of new products and various new process and package developments. Depreciation should be approximately $2 million. Accounts receivable was up 28% reflecting the strong growth in revenue.

Days sales outstanding increased slightly to 32 days from 30 last quarter. Net inventory decreased $600,000 from last quarter. The days of inventory 68 days, down a day from last quarter. We are expecting inventory to increase in Q2 in response to higher demand. Our channel inventory in absolute dollars was up 3% in Q1 but the days declined to 64 days from 69 days in Q4 as a result of the 4% increase in sell-through. In Q2 we expect an increase in channel inventory in response to stronger demand.

In summary, our Q1 results demonstrate that our strategy is working. Sequentially we expanded GAAP operating margin by 640 basis points and non-GAAP operating margin by 430 basis points through revenue growth and caught by new products and new design wins, higher gross margin and operating expense discipline.

I will now hand the call over to Mohan.

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q1 fiscal year 2011 performance by end market and by product group, and then discuss our Q2 fiscal year 2011 outlook. Q1 of fiscal year 2011 was another record revenue quarter for Semtech and the first time that the Company has achieved over $100 million in net revenues in any single quarter in its 50-year history. We achieved net revenues of $102 million. This is well above the high end of our revenue guidance and represents a 20% sequential increase versus Q4 of fiscal year 2010, which was also a record quarter for the Company, and a 70% increase versus Q1 of fiscal year 2010. We also increased our non-GAAP gross margins to 58.8% and our non-GAAP earnings per share to a record $0.35 per diluted share.

In Q1 revenues from communications increased and represented approximately 34% of revenues. High end consumer revenues increased and represented 34% of revenues. Approximately 22% of this revenue was from handhelds and approximately 12% from other consumer systems. Industrial revenues increased and represented approximately 21% of revenues. Computing revenues increased and represented approximately 11% of revenues. As we anticipated, while all segments were relatively strong, we saw stronger demand from the communications and industrial markets.

Now let me discuss the performance of each of our product groups in Q1. In Q1 our power management revenues increased sequentially by 4%. The increase in our power management business was driven mostly by the communications and consumer segments. We are very pleased with the progress in our power management business. Revenue contributions within our power business are now from a broader set of market segments that garner higher gross margins. Our power management gross margins increased significantly in the quarter due to new product traction. While gross margins in our power business are still significantly lower than our target range, we are making good progress and I do expect that we will continue to see significant improvement in our power management gross margins over the next two years as new platforms gain traction.

Our power management business has started to release new product platforms targeted at Energy Star driven applications, and these new platforms are gaining traction in many customers in our geographies. We recently announced a new high voltage, high brightness LED driver platform targeted at medium sized LCD displays used in automotive, medical, gaming, avionics and other applications, with a high reliability and mercury-free benefits of LEDs are displacing traditional fluorescent CTFL bulbs. In Q2 we expect our power management revenues to increase again.

In Q1, our protection revenues increased sequentially by 10% to achieve another quarterly net revenue record. Demand for our protection products remained strong in the quarter driven mostly by the high-end consumer communications infrastructure and computing segments. The increase in demand for our protection devices is being driven by the increase in the number of ports requiring protection, increasing performance requirements of these ports, and the increase in system returns our customers are facing due to unprotected systems. Our protection business unit continues to execute superbly and we remain very encouraged by the design win momentum of our protection products across all our target end markets in all regions. In Q1 we extended our high performance 2.5 volt protection platform targeted at fast and gigabit ethernet interfaces. We also continued to release new products based on our new proprietary process technology and our new proprietary packaging technology which were both recently released. Both these new technologies leverage over 30 years of protection technology competency developed by Semtech. In Q2 we expect our protection revenues to increase significantly again and achieve yet another record revenue quarter.

In Q1 our microwave and high reliability products increased 56% sequentially. Demand for our high rel products increased as the military, aerospace and medical segment demand started to improve, and demand for our microwave products also increased driven primarily by the demand for unmanned air vehicles. In Q1 we announced a new family of high reliability ZENA devices targeted at the space market. And we also announced that our high reliability transient voltage suppression devices are now certified for use in space applications. In Q2 we are anticipating that our microwave and high reliability business will increase modestly.

Revenues for the advanced communications and sensing business increased 22% sequentially to achieve a new quarterly net revenue record. Strength in this business was driven by both the communications segment and the industrial segment. Specifically, revenues from our new ToPSync timing synchronization platform reached a new record again as Tier 1 infrastructure OEMs continue to deploy new IP backhaul and multi-standard access base station solutions for 3G, 4G and LTE applications. We're also seeing deployment of ToPSync in aggregation switches and access and edge switches where new packet based networks meet traditional SONET/SDH based networks.

In Q1 we also saw very good design win traction of our new RF platforms in the energy harvesting, security and home automation sub segments as our ultra low power technologies continue to accelerate with the increasing demand for green friendly technology. In addition our new ultra low power medical and touch sensing platforms are gaining momentum. And we are very excited about the momentum of these new platforms.

Our advanced communications and sensing business is executing very well from a new platform execution and design win standpoint, and bookings are at record levels. In Q1 we announced an ultra low power, fully integrated capacitor touch sensing platform targeted at industrial, consumer and hand-held systems. We also announced an ultra small form factor temperature sensor and monitor targeted at green systems that need to go into sleep mode at a predefined temperature to reduce energy consumption. In Q2 we expect revenues from our advanced communications and sensing business to increase modestly and achieve another record.

Our transport and datacom business net revenues increased 104% sequentially to achieve a new quarterly net revenue record. Demand in this business is driven primarily by 40-gigabit and 100-gigabit per second communications infrastructure equipment and this demand remains very strong. This business has experienced significant growth over the past few years fueled by record growth in traffic over both wide, wired and wireless telecom networks. Future market growth drivers include growing video traffic over the Internet, emergence of data centers, cloud computing and wireless data services. Improving the execution in our transport and datacom product group is a critical goal for us in fiscal year 2011 as we try to improve our operational flows, manufacturing efficiencies and our new product delivery commitments to customers. I'm personally reviewing the execution improvements in this business and I do expect to see improvements in the next few quarters. These execution improvements should result in further top line acceleration and further gross margin expansion. In Q2 we expect to have transport and datacom revenues to increase significantly and achieve another record quarter.

From a distribution POS standpoint in Q1, we saw total POS increase by approximately 4% to hit a new POS record for the Company driven mostly by North America, Korea, and Europe. Our distributor business, much like the overall Semtech business, is very well balanced with 54% of the total POS coming from consumer and computing end markets and 46% of the total POS coming from industrial and communications end markets. Distributor inventory days was down again in Q1 from 69 days to 64 days. We believe that our channel inventory is relatively low given the current demand environment we are in and increasing supply lead times.

Moving on to new products and design wins. In Q1 we released a record 67 new products, and recorded over 690 new design wins which were both very good results for the Company. We believe that we are uniquely positioned to benefit from many fast growing market segments and we do expect to see a continuation of the strong design win momentum within these segments as we bring out more new leadership platforms in Q2.

Now let me discuss our outlook for Q2. The current demand environment across all our businesses is very strong. We entered Q2 with a very strong backlog and demand full cost, and the demand appears to be stable and well balanced across all markets and across all product groups. This broad strength is just that we are benefiting from both the overall market recovery as well as specific product and market cycles as Semtech has invested in many new emerging applications and many new technology platforms. The first few weeks of bookings in Q2 have been very strong. Visibility has improved significantly, and given our channel inventory was also very low we are very optimistic that Q2 will be another record quarter for Semtech. We currently expect Q2 net revenues to increase by 6% to 10%. To attain the mid-range of our Q2 guidance or approximately $110 million we needed net turns orders of approximately 38% at the beginning of Q2. We expect non-GAAP earnings per share to be between $0.37 and $0.39 per share.

I will now hand the call back to the Operator, and Linda, Emeka and I will be happy to answer questions. Operator?

(Operator Instructions). Your first question comes from the line of Harsh Kumar, Morgan Keegan, your line is open.

It looks like in one shot you reached your stated financial model, so very good job, congratulations. Couple of questions. Is there any more rationalization that's left from Sierra Monolithics acquisition either in gross margin or OPEX? And is the acquisition pretty much fully integrated at this point in time?

Harsh, I would say that there are two elements to the SMI acquisition. One was the transport and datacom side and one was the microwave side. The microwave is very early stages. We have a strategy to develop Sierra family of microwave products, standard products, and that is early stages from that standpoint. On the transport and datacom side the 40-gig and 100-gig products are ramping now. It's more about execution of new products, the road map that we have, and also I think there is significant improvements we can make to the manufacturing efficiencies. I doubt there's that much in OPEX, but I think mostly it's gross margin expansion, new product execution, top line growth, that type of thing.

Great, great. And would you say that the 58.8%, call it 59%, gross margin that you just put up, it's clearly getting a boost from this high level of com business and the industrial level. A lot of companies have reported abnormally high increase in industrial business. Do you think this is a number we should be thinking of on a longer term basis for your current model?

The model is, as you know, 55% to 60%. Let me make a comment about future gross margin expansion. I think our power management business, which has been a drag on our gross margin for some time, is now starting to really accelerate its margin expansion. So that is definitely helping us and will continue to help us for some time. I think our communications and industrial platforms that are coming out in advanced com and sensing business will continue to drive further top line growth, and hopefully that will contribute also. I think in our microwave high reliability business we have opportunities there from both the high rel side where we're starting to get more space products out, those will garner higher gross margins as we get more revenue from those. And then on the microwave standard products side as we start to release those products we won't see the revenue from those for about 12 months but I think that will drive higher gross margin. And then of course the transport and datacom, as I mentioned, the yields, better execution there. And also on the protection side, I think new products and just making sure we have the overall market discipline to exit commodity markets and participate the way we have been, then I think we will be fine.

Great. Last question from me before I jump back in. Your industrial business, Mohan, is that a stickier design win kind of business for the most part, or is it more standard products? Could you just maybe explain and give some more color on that?

It's a mixed bag. We have a lot of different customers in that category. It's a fair amount of different markets we participate in. It is very sticky, I would say. It's like our com business. It takes a long time to get designed in. Once you're designed in, the time to revenue is much longer. But then also the stickability, if you like, is longer as well. The life is typically is 10 years. Industrial and communications are very much like that, and that's why we like the balance of having both the consumer and computing business, which today in Q1 was 45%, combined 45% of the Company, and the communications and industrial was combined 55% of the Company and we like that balance.

Great job, guys, congratulations, again.

Thank you.

Your next question comes from the line of Steve Smigie, from Raymond James. Your line is open.

Thanks, and I'll add my congratulations on the earnings results. One quick question on inventory. You said you thought inventory dollars would go up in the channel, but I assume on a day's basis it comes down again. The question is, will sell out be up more than what you put in the channel do you think?

Yes. The channel inventory from a day standpoint we believe is low. Given our guidance, we're expecting that revenues will continue to increase. What we'd like to see, obviously, is the channel inventory go up a little bit. But POS is so strong that it is unlikely that days are going to increase. I think that is likely to be the outcome, Steve.

Great. I was hoping you could go into a little more depth on ToPSync product. It sounds like you're getling wins across the spectrum of 3G, 4G, LTE. Are you seeing it more in one area versus the other or is it spread out?

No, it is very broad. It's greenfield sites, existing infrastructure, it's different types of boxes, wherever the requirement for timing sync. And that usually is where you've got high bandwidth IP backhaul type of transmissions going on. So it's fairly varied, the type of boxes that are using ToPSync

Okay. Great. And then I was just curious on the protection business. I see you guys are doing a great job cleaning up there. You talked about potentially exiting some lower-margin businesses. I'm curious if you could talk a little bit about would it make more sense just to stay in there to get the extra growth? How are you making the decision to exit versus to take the growth? Is it just too low margin?

The exiting strategy is more of a strategy across the Company. I wouldn't say it is just protection. We have done that in power and in notebooks and areas like that. It is really more of a statement to say if we don't have a differentiated product that the customers are willing to pay for, and they see the value in that product, then longer term I don't know that that's a good place for us to be anyway. So it's more a question of designing our way out to that. Or bringing in a product that can be highly differentiated that the customers do see value in. We're starting to see more and more of that. I think even in the computing space where we're bringing out products we play in a little bit different flavor than we've historically played, and we're seeing some successes there.

Okay. Last question is, can you give a little more detail on how much a margin opportunity you think is left, particularly on the power side?

I don't want to give you a specific number, Steve. All I can tell you is that power management business is still significantly below our margin model, and so there's a lot of opportunity there.

Great. Congrats, again.

Your next question comes from the line of Craig Ellis of Caris & Company, your line is open.

Thank you. And my congratulations as well on the strong financials. Emeka, you mentioned a number of drivers to the upside on gross margins in the quarter. Can you break out the relative contribution of those factors?

I think it was about 30%. I know that adds up to 90%. The remainder is just from order operation on efficiencies. In terms of the three drivers that I mentioned, their contribution was about 30% of the overall expansion.

Okay. Secondly, Mohan, as you look at the power management business you're making good progress. A big competitor is bringing on 300 millimeter capacity and may become more aggressive on pricing. How do you feel like you're positioned relative to the way that dynamic can unfold in the back half of this year, next year?

Semtech, we played the volume strategy in the past and that never worked out for us. So I don't think our game is to play in markets to fill fabs up. That is not really our strategy. We're quite happy playing in nichier segments. We focus on obviously the green tech side where we can bring small form factor, high efficiency, those type of things, real differentiation for some markets where the volumes might not be high but there's significant potential growth. We're also happy to play in some of the early markets, the early-stage markets where, for example, the Energy Star requirement gives us an advantage and those type of areas. So I would still view our major competitors as the guys who play in those nichey markets and garner a higher gross margin than the volume players.

That makes sense. Lastly for me, a lot of attention on what is going on in Europe. Can you summarize for us what you're seeing with the European business at this point in the quarter.

The European business continues to be quite strong for us. Our industrial business and our advanced com and sensing business is driven out of there. The medical remains quite strong. The communications infrastructure business remains quite strong. But it's fairly broad. So, I haven't seen anything. European POS is still quite healthy. I haven't seen anything abnormal in our European business.

Okay. Thanks, guys.

Your next question comes from the line of James Schneider of Goldman Sachs, your line is open.

Good afternoon, thanks for taking my question, and congratulations. First of all your industrial and coms business have done very well over the past couple of years and the mix of business you have today is a little bit different from where it was before. Can you help us understand what you see as normal seasonality at this point heading into an October quarter for the overall business?

That's a difficult question because you're right, our mix is changing, although we still have a sizeable consumer and computing business, and we have sizable design wins in that area. So it's tough to call. I think if the normal seasonality, with Christmas and those type of things, are quite good and people bill and customers billed for that, we would see a strong Q3. That would be my anticipation. But our hope is that we won't see as much of a peak to trough as we have historically. We'll see a little bit more flattening out because of the stronger industrial communications.

I understand. So Q3 sequential growth will be more muted than historically, right?

It depends on the computing and consumer. You have to remember that still for us consumer and computing is 45% of the Company. So if we have a very, very strong computing and consumer demand in Q3, then we can continue to see a very good growth in Q3, also.

Okay. Fine, that's very clear. Thanks. And just as a follow-up, on the industrial business, and again continued to come back very strongly. Do you think that you're shipping in line with end demand at this point with respect to the broader base of industrial customers? Or do you still have more normalization to go here?

Industrial I think it is shipping to end demand. If you look at the different types of segments we're participating in, it's energy harvesting, it's AMR, industrial security, lighting control, home automation, medical, some military applications. They're fairly small volumes, really, compared to the consumer and computing segments, so you don't really see that dynamic occurring with those markets. So I think we are seeing the demand there, shipments in line with demand.

Perfect. Thanks very much.

(Operator Instructions). We have a question from the line of Cody Acree with Williams Financial Group. Your line is open.

Hi, guys, thanks a lot. With you now getting to the high end of that target model, and the new mix shift, is it time to start ratcheting that up, or are there other factors that might keep you in that (inaudible) range?

The reason why we'd like to keep the range for now at least, is we set a target of $500 million and would like to get there -- that's $125 million quarter run rate on a consistent basis, and then determine what the next target is. I'm thinking $1 billion. And if we want to get to that type of revenue range, then I think gross margin has to be probably kept in that range. So we'll probably keep the model we have.

Got you. You are not alone, obviously, in seeing lead times expand, channels are tightening, constraints seen across the board in a lot of products. That's the typical signs of what would cause a customer to order a bit more than maybe they would need at the time. What's giving you confidence that we're not heading down that path?

It's broadbased, Cody. You can never tell. Obviously, when trough to peak demand rapidly decreases and customers can't get what they want, of course that is what they typically do. But when you see increases in communications across the board, when you see increases in the industrial systems across the board, increasing in consumer and in computing, it's rare to see it across the board. And then like I said some of these design cycles are very long. Some of the time to revenue on some of these is very long. Some of the market growth is actually driven by government subsidies and infrastructure deployments and that type of thing. So at least in our case it is a fairly broad growth. It's not one customer, it's not one segment, it is not one application that is driving the growth. So I think we're fairly comfortable about stating that, making that statement.

Great. And then lastly you mentioned Europe was not seeing any real exposure yet. But is there a typical lag, or can you maybe give some guidance on what would be a lag, if you were to see something like that, obviously these are long lead times?

Europe is more of an industrial communications home, at least from our business standpoint. We don't have a lot of computing and consumer business that's generated in Europe. So industrial and com does lag consumer demand so, yes, that's a possibility. But like I said, at least at this point, we're not seeing anything that is unusual.

All right. Very good.

There are no further questions in queue. I turn the call back over to the presenters.

Okay. Let me summarize by saying that Q1 fiscal year 2011 was a really strong quarter for Semtech. Revenues increased sequentially by 20%. We were able to increase our cash and investments balance by approximately $9 million to $171 million. Our end market balance and traction from our new product platforms in all end markets is enabling us to continue to outperform our peer group and maintain the very resilient profit and cash generation model we have. In addition, three of our five businesses achieved record revenues and we saw strong continued design momentum in all regions and across all product lines. Finally, we achieved a record $27.6 million of non-GAAP operating profit and a record $0.35 of non-GAAP earnings per share. With that I would like to thank everyone for participating in our first quarter conference call and look forward to updating you all next quarter. Thank you.

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