思佳訊 (SWKS) 2002 Q4 法說會逐字稿

Good day and welcome to the Alpha Industries 4th quarter fiscal year 2002 earnings announcement conference call.

Today's call is being recorded. At this time for opening remarks and

introductions, I would like to turn the call over to the Chief Executive Officer, Mr. David Aldrich Please go ahead, sir.

Thank you and good afternoon. Thank you for joining our Q4 fiscal year '02 earnings conference call. During this call, we will be addressing our 4th quarter results.

We'll talk about recent design wins and order activity. We'll talk about our current outlook and guidance going forward, and we'll provide some color and update on our pending merger with Conexant Systems wireless business.

The format will be similar to prior calls. I'm being joined by Paul Vincent, our

Chief Financial Officer. He'll give a financial update, and then we'll take questions. Before we start, Paul, please read the Safe Harbor.

Thanks, Dave, and welcome everyone.

Today's conference call will contain statements which do not relate strictly to historical or current facts and which reflect our intentions and expectations as of today, April 30, 2002.

These forward-looking statements are inherently subject to risk and uncertainty. We caution you not to inappropriately rely on them. Alpha's actual results and future events may differ from those anticipated in our comments because of various factors, including but not limited to the following: variations in projected sales, earnings, losses, expenses and other financial results; the magnitude, mix, and timing of orders in shipments and our ability to accurately predict them; the timing and success of new product development and product marketing for both Alpha and for our customers; the success of our critical supply and product development relationships, variations in our strategic direction, operating plans, and financial model; the timing and extent of recovery in our markets; and market developments, competitive pressures, and changes in economic condition that vary from our expectations.

As well, additional factors relate to our proposed merger with the wireless communication business of Conexant Systems.

These factors include the expected cost, benefit, and timing of the merger and our ability to successfully integrate the merged businesses, operations, personnel, and customers.

Additional information and risk factors are included in our periodic reports filed with the SEC, including our Form 10-K for fiscal year 2001.

This fiscal year Forms 10-Q, and in the preliminary proxy statement we filed, in our registration statement on form S-4A, on April 16, 2002.

Copies may be obtained by contacting us or the SEC. Please note that we do not intend to update or revise these comments to reflect changes in our expectations or in the facts or circumstances on which our comments may be based.

Dave?

Okay.

Thank you, Paul. Let me start with some highlights. We met our earlier guidance. That was the guidance that we provided to you during our March the 28th conference call. Our sales were just north of 28 million. Our loss before -- loss per share before merger expenses was 12 cents. Our research and development was just under $10 million, and our book-to-bill was slightly greater than one.

As you are all well aware, March was a seasonally weak quarter for the industry, and as we discussed during our last call, Alpha's been designed into several new phone platforms with our power amplifiers and our RF front-end modules. However, the production ramp of these products did not contribute significantly to revenue in the March quarter.

Coupled with the slowdown in wireless infrastructure which we also discussed, we revised our guidance during that call. So where are we today?

Well, as we presented it in March, the power amplifier contract that slipped out of the quarter are beginning to ramp as we speak. These contracts will continue to ramp and accelerate throughout the summer months and into the back end of the year.

In addition, and we are quite pleased that we were just awarded a production order for our newest CDMA gas switch component from Samsung.

This is on a very high volume CDMA phone platform, and we have production beginning in June. The net effect is that we're projecting sequential improve -- improvement in our top line result for the June quarter of between 8 and 12%, and the products and orders contributing to this increase will continue ramp beyond June and in fact into next year.

I would like to run down a few of the highlights.

We've had several announcements during the quarter. During the quarter, however, before I get to that and throughout the year, we maintained an aggressive R&D investment posture. We've been spending nearly 30% of sales to design new products and address new opportunities, and we've remained absolutely uncompromising with respect to this strategy.

This commitment to positioning Alpha for the future resulted in several announcements, and they include first, the completion of our acquisition with Aimta.

Aimta is a developer of low cost, low tem -- low temperature coated by a ceramic or LTCC. LTCC is providing us with the required technology to differentiate Alpha with lower module costs at a higher level of integration than our competitors.

In addition, we received two design wins for switch-filter modules incorporating Aimta's LTCC technology.

One is included in the CDMA wireless handset with GPS capability, and the second is 802.11 LAN application.

During the quarter, we also received an order for our Quad Band, our Quad Band In-Gap power amplifier module.

This module has been designed into a new handset being introduced in '02 by our largest handset customer.

And finally, we were just awarded preproduction orders for our new transmit chain, our TX module. This module incorporates our dual-band HBT, in-gap HBT power amplifier, a silicone A6PA controller, a P-Hemp gas switch, a band path filter, a gallium arsenide directional detector and switch controller, along with discrete semiconductors.

We believe that this is the most highly integrated RF front-end in the world today. So as these events indicate, despite the '02 market, we continue to execute and deliver an aggressive product road map, and we've introduced what we feel is a very exciting lineup of these module base products, and we expect payback to begin this quarter and beyond.

Finally, and perhaps most significantly, given that we are moving very quickly to complete the merger with Conexant's wireless business, I will provide more information and commentary on our progress today after Paul provides the financial update.

Paul?

Thanks, Dave.

I will begin by briefly commenting on Alpha's overall financial performance and noteworthy events for the fiscal year ending March 31, '02.

I will then review the specific financial results for the 4th quarter, which met the revised top line and bottom line guidance provided in March, and then I will comment on the financial outlook for June.

In my comments, reviews and comparisons, I will exclude the charges and expenses related to the acquisition of Aimta and the pending merger with the Conexant wireless business.

Fiscal 2002 was a challenging year as Dave has indicated. As the economic downturn continued throughout the fiscal year, demand and therefore sales for our products in our targeted markets, wireless and broadband, declined 58%, resulting in net sales for the year of $126 million. To minimize the impact of lower sales, we reduced our quarterly break-even from approximately $54 million to $40 million, or 25%. The lower cost structure was achieved while increasing our investment in process and product development in response to our customers requirements for more integrated solution.

Operating and net results declined by 67 million and 47 million, respectively, as compared with last year. Net loss for the fiscal '02 was 14 million or 31 cents per share.

In December, we announced an agreement to merge Conexant wireless business with Alpha. We believe that by combining the wireless technology and product portfolio of the two companies, the new entity will be uniquely positioned to drive the evolution of our integration and complete semiconductor system solution for mobile communication application.

During the March quarter, we made significant progress in completing the regulatory filings and requirements.

We expect to close the merger in the current quarter. In preparation, more than 100 employees are participating in planning the integration, reviewing all aspects of our investment strategy, sales channel, and cost structure.

We will provide details about our strategic direction and financial models as we complete the regulatory requirement.

In March, as Dave has indicated, we finalized the acquisition of Aimta, Inc., a developer of low temperature, cold-fired ceramics or LTCC. LTCC is an enabling technology allowing our customers to reduce design lead time, enhanced functionality, and shortened time to market.

We have recently announced design wins for modules incorporating this technology.

Now for the specific Q4 results. Sales for the quarter were 28.2 million. Order delays for power amplifiers late in the quarter combined with continual weakness with the wireless infrastructure products were the primary factors contributing to the sequential sales decline. Gross margin for the quarter was 22.4% versus 33.7 last quarter, due to lower sales on a relatively fixed cost. R&D for the quarter was 9.8 million, or 34.8% of sales, up slightly from last quarter. We have maintained our R&D spending to meet our customers' changing product requirements to more integrated solution. SG&A for the quarter was 5.7 million ,or 20.1% of sales, essentially flat for the last quarter. As a result, operating loss was 9.2 million, in line with revised guidance. Turning to our financial outlook, we are projecting sales to increase 8 to 12% sequentially on the strength of our production ordered and design wins mainly for handset applications. Based on the current cost structure, we expect sequential improvement in gross margin of 400 to 400 basis point and operating expenses to be consistent with last quarter's spending. Net interest and other income is forecasted to be approximately 700K, given the current level -- current investment level and lower interest rates on maturing and reinvested cash investments. Based on the foregoing factors and maintaining an effective tax rate of 33%, the loss per share for the June quarter is expected to be 9 to 10 cents.

I will now comment on our financial position. At the end of March, we had cash and short-term investments of approximately 114 million with minimal debt. During the quarter, we used cash of approximately $15 million, the primary uses being the pretax loss before adjustments of $8.2 million as there was no cash benefit to the tax credit, and the Aimta acquisition which was procured by cash of $7 million. Cap-X for the quarter was 8.1 million and depreciation of $5.3 million for net Cap-X of 2.7 which was offset by a 2.7 million reduction in working capital.

Receive -- receivables declined by 2.6 million.

Payables increased by 2.1, offset by inventory increases of $2 million. Finally, for those of you who track the two operating segments, I will summarize the quarter 4 actual results. For semicondutors, sales for the quarter were 22.8 million, gross margin was 4.6 million or 20.1%, and operating loss was 9.1 million. For the ceramics segment, sales were 5.4 million, gross profit was 1.7 or 31.9%, and the operating loss was 110K. In summary, we met our revised guidance. We expect sequential revenue growth and improve operating results in the June quarter.

I will now turn it back to Dave for more in-depth comments on the current outlook and market dynamics, as

well as the update on the impending merger with the Conexant wireless business.Dave.

Thank you, Paul.

Okay. At this point, I'd like to discuss the -- some of our recent accomplish and a bit more -- accomplishments in a bit more detail. I'll comment on our competitive position, and I'll end with some details on our merger with Conexant.

And as I mentioned before, as we announced during the quarter, we completed the acquisition of Aimta.

Aimta brings LTCC to our technology line-up, and LTCC our low temperature, cold-fired ceramic, is essentially a design and production platform for packaging and integrating multi-chip modules.

The advantage that this essentially offers to our customers includes a much smaller footprint. It's a High-Q ceramic; you can shrink it. Lower costs, since many of the passes filters and discretes are essentially embedded, or included if you will, in a ceramic substrait. These modules will be produced in Taiwan, initially, and subsequently China, using a volume production line dedicated to Alpha as part of the acquisition agreement.

And during the quarter, we received our first design wins for switch filter modules including this technology.

This includes a module that's been included in the CDMA handset with GPS capability and modules for an 802.11 chip set.

In addition, we received qualification orders for Alpha's new, excuse me, for Alpha's new transmit chain module. Now this module, as I mentioned, we believe is the most highly integrated RF front-end in the world, and it has our PA, controller, switch, detector, and discrete semiconductors.

In addition, we just received and we previously have not announced this, that we received a volume contract from Samsung on -- on a new CDMA phone.

This is a -- this is very -- this is a very high volume runner.

We are quite excited about this because this OEM is taking market share and has been a target of ours for quite some time. In addition during the quarter, we received volume orders for our quad-band power amplifier.

This is new amplifier designed for us as part of our Alpha's AP 137 series, and it's being introduced into two phones during the second half of this year.

These are GSM and GPRS related platforms. Our market share for power amplifiers with this customer, Motorola, when we include the previously announced tri-band modules and the I-C based product has increased dramatically for the second half of this year and going into '03.

I must say that I'm -- I'm really quite pleased with the performance of these PA modules.

We started with the AP 134 tri-band family, and our performance quite frankly exceeded our expectations as we generated greater than 90% final yield. A module production teams in conjunction with our packaging and test people delivered the product on time and on budget. We feel this is a great start to an important product family for us. When we couple these modules with our leadership in gas switches and now our proprietary LTCC capability, we've been able to introduce a family of products that provide our customers with very high RF performance in a miniaturized or small footprint with lower overall product cost for the solution.

And we're quite pleased that many of our customers agree, and we are beginning to be awarded design wins on the newest platforms.

I'd like to turn for a moment to our infrastructure business. As we outlined during our March call, we've seen service providers push out orders with our customers, our OEM customers, as they delay capital expenditure initiatives.

While this business continues to face a low visibility, we have some cause for optimism driven by our position with the leaders, and I'll comment on a couple.

We completed our annual negotiations with Ericsson a couple of months ago.

They went very well. We increased our share with Ericsson. Ericsson's our number two customer. We've seen pockets of increased demand for their 1900 megahertz GSM base stations for the U.S. market, people like Cingular and AT&T, and with the -- with the 1800 and the European GSM edge systems scheduled for Q2 and Q3.

We have very high content on these platforms with forecast and demand later in the year.

We're also quite pleased that Samsung, now also a handset customer, has been and is a large space station customer of ours. This has given us increased penetration of the CDMA base station market in both the United States and in China. And our business with Nokia, Lucent, Nortel and others, while lower then expected, remains quite strong in terms of our market share and positioning.

In fact our position on the latest design -- re-design 2-G systems as well as 2 1/2 and 3G architecture significantly exceeds our content and older designs with each of these customers.

Infrastructure will be a contributor to our business as 2G networks are retrofitted and upgraded, and 2 1/2 and 3G networks are deployed.

But the exact timing is obviously the subject of considerable debate. Okay. Let me try to give some more details on our pending merger with Conexant.

It's obviously something that has -- that we're really been quite involved with now for a few months. On December 17, we announced the signing of our definative agreement, and the intent and our message is that we are launching a business that creates a world leader in wireless semiconductors.

By combining forces, we will have created a company with the top cellular phone, OEM, as our top customers -- Samsung, Nokia, Motorola. We have a quite complementary with almost no overlap RF product portfolio to address everything from switch and filter products and multi-chip PA modules to highly integrated transmit and receive products.

In addition, we deliver a comprehensive GSM, 2 1/2 G -- GPRS solutions including the complete radio, base-band processing, protocol stack, and user interface software. So we have a process and product [INAUDIBLE] that really is quite unparallel to the industry. Now since the announcement, we've assigned more than a hundred people from both companies to the integration and optimization of our systems, of our sales channel, our organization, and our operations.

Our business teams and these integration groups are making a lot of progress towards the successful launch later in the quarter. I'd say my observations to date are firstly, that we see and we continue to see more opportunities for topline growth.

Our customers on both sides have received the news very positively. We see opportunities for cross-selling and opportunities to integrate our truly unique product [UNAUDIBLE] to satisfy our customers's road maps.

The combination of these factors give us a great deal of confidence in our ability to accelerate our combined topline growth.

And as an example, the recent win with Samsung for our gas switches. This customer seems very eager to engage us, likes the road map of our combined products.

In addition we see numerous opportunities to insert Conexant CDMA PAs where they have quite a leadership position into sockets with our top customers. We are finalizing specific action plans to reduce our product cost and to lower our overall break-even point. We are aggressively pursuing synergies that will provide us with a product cost advantage and enhance our margins.

Our current models indicate that as we stated during our merger announcement, our conference call, and our road show, the combined business will be profortable at $150 million per quarter.

However, we intend to lower our break-even point below that level, so that we will be well positioned to meet our financial objectives. Our combined revenue guidance that is for Conexant's Wireless business and Alpha in the June quarter is in excess of 130 million, and given the seasonally high back-end of the year and the products that both companies plan to ramp in the upcoming quarters, we are confident in our ability to deliver strong results to you, our share owners.

We'll be communicating our progress and more details going forward.

We look forward to getting the merger behind us and providing these details on initiatives and our operating financial

plans as we close the transaction. Silvia, I'd like to turn this over to questions.

Thank you.

Today's question and answer session will be conducted electronically. To ask a question, please press star 1 at this time.

We will take as many question as time permits and proceed in the order that you signal us. Once again, please press star 1 at this time, and we'll pause a moment to assemble the roaster. And we'll take our first question from Mark Roberts of Wachovia Securities.

Thank you, good afternoon. Could you give us a breakdown of revenues? What percentage came from switches? What percentage from power amps?

We really don't provide that kind of detail.

Okay. I mean even -- even generally in terms of percent -- you know, kind of broad percentages.

We'll, I'll say that, you know, we have mentioned in the past that power amplifiers have been growing faster than our switches.

We have a much greater market share in the switch market, and

our power amplifiers are, let's see, roughly equal perhaps not quite equal to our switch business.

Okay. Um -- and um, the second question, um, Conexant's wireless gross margins appear to be considerably below yours. When the two businesses are merged, what are their specific cost items that we should think about that you're intending to eliminate or ways that your synergies that you're expecting to get that are going to bring their gross, you know, the combined gross margin closer to yours excluding Conexant?

I'm glad you added that. There's only going to be one gross margin. Well, I'll -- I'll start with the cost side. There -- there's truly nothing that's off the table, so our integration teams are -- are looking at all aspects of our logistics. They're looking at our combined cost structure with respect to how we assemble test product. We're looking at our -- our labor costs, our fixed costs and quite frankly, there's nothing off the table.

So we are -- we are developing those detailed plans as we speak and there will be synergies there. And on the top line perspective, we're really quite impressed by how -- how relevant the products are to -- to our customers when we combine them, and as we look towards our ability to offer our customers more than our competitors, quite frankly, we see an opportunity to accelerate topline growth with compelling products and with our ability to leverage our respective sales channels.

Okay. Thank you.

Your welcome.

We'll hear now from Joseph [Tulip] of Lehman Brothers.

Hi, guys.

In terms of your largest customers, Motorola and Ericsson, can -- can you give them -- can you give the percentage of revenue for each customer during the quarter.

Yeah. During the quarter [INAUDIBLE], it -- they -- Motorola was about 27% of -- of total revenue, and Ericsson was just shy of 10%.

Okay.

And then -- just in terms of, maybe you can give me a rough ballpark answer, in terms of the mix in the March quarter infrastructure versus handsets,

could you possibly give that?

Yeah.

Let me -- let me look here. Handsets were about almost 50% of the total, and

infrastructure was somewhere about 15% of the total.

That was 15?

Yes, that's correct.

Is that going to change in the June quarter? Will the percentage of infrastructure increase or will handsets increase?

We expect that the handset will definitely dominate in the -- in the upcoming quarter.

Infrastructure is still an unknown. Our expectation would be that on a dollar basis that it -- it would

would remain relatively consistent if not grow slightly.

Okay. Thanks a lot, guys.

And we'll hear now from Sam May of Piper Jaffray.

Hi.

Good afternoon. On the -- Dave, on the switch business, can you talk a little bit about the competitive environment for the switch business and -- and how

that has -- has changed or evolved over the past year for Alpha, who you're seeing, and where the competition is -- has changed over the past year?

Yeah.

I think it's -- it hasn't. What's been remarkable about it is how little it's changed. The -- the companies that provide gas -- compelling gas solutions that is really competitive gas solutions, are using [INAUDIBLE] and they're primarily Sony and NEC and Maycomm TYCO. We feel we've got about 40% share of that market.

We've increased our share with our top customers recently because those are moving from single gas chip-in-a-box into more highly integrated solutions, and we have the technology to bolt around, if you will, the switch.

We've seen no one enter the switch market that I would say has any more than very low single digit share.

We've also seen our share with respect to both Sony and TYCO increase.

And I think that's more a focus issue, so we've seen ourselves from a technological point of view distancing ourselves from those two competitors, and really

there's nobody new to speak of.

And are you -- are there any technology transitions that are -- that are being undertaken in any -- any of the handset manufacturers that are -- are voiding the need for a gas-based switch.

Well, we're seeing the -- the gas switch being corporated into really two areas.

In the TX module that I referred to, what you really have the entire transmit chain, [INAUDIBLE], front-end switch amplifier. That switch is being incorporated into the module. And a couple of customers now are actually doing that as we speak, and we've got more that are very interested in their product.

So it's still a multi-throw P-Hemp gas switch, but its incorporated in TX. The other emerging trend is taking the gas switch and incorporating it with filter technology wrapped around an LTCC multi-layer substrate, and that creates if you will a receive front-end module.

It comes with a switch, the front filter, perhaps a band pass filter, and it may or not include soft filters. Today, none of our customers seem to want the soft filter,

but that's an option that we offer.

Okay, and final question, on the -- based on the infrastructure side of the base station, what's the average dollar content that Alpha gets out of a base station platform, and is it -- does it differ much from TDMA to CDMA to GSM platform?

It doesn't differ much by air interface standard.

Recently, the content has gone from in the tens of dollar range to as high as close to, and it depends on what we have, Sam. We've got a lot of product that address that market. Let's just say tens of dollars. We have significantly more content. Let's call it $20 to $30 more when there's a MCPA or multi channel

or highly linear power amplifier involved because then there are ceramic delay line filters, and there are widgets that we call vector modulators and modules that increase the performance of that feed -- feedback loop and provide greater linearity to the PA. So, if it's got an MCPA, we get quite a bit more content today.

Great, thanks.

You're welcome.

And we'll hear now from Jeremy Butney -- Bunting of Thomas Weisel Partners.

Thanks very much.

What -- the expectations for the June quarter including the PA modules which you refer to in your pre-announcement that had

been delayed?

Well, the -- as we referred in the June -- in the June quarter, Jeremy, we saw those modules delayed into -- there were two of them and one was in the May-June time frame and the other in the June-July, say May through July and we see that is exactly what's happening.

So it looks like they'll be ramping in May and June.

That gives us an uptick in our power amplifier business that's providing most of the growth -- sequential growth quarter-over-quarter.

We'll get some of that switch business late in the June -- late in the quarter, so it'll be a bigger contributor next quarter than this quarter.

And the newer -- the quad band design in the TX module is a Summer event.

Okay.

Thanks for your help. Thank you. And Dave, congratulations on the first win with the [LTT] switch filter module.

I was wondering if you could comment on -- what is the relative ASP for that part, relative to say a switch or relative to say a Dual band PA module.

Yeah.

Yeah, right.

If it's just a switch and the filter, it's around a dollar to a dollar and a half.

If you take the transmit module, now you take your power amplifier and include the switch, it gets up to about $3.50 for just that TX module.

So compared to a gas switch which is perhaps a half a dollar; a power amplifier module

which is perhaps two to two-fifty; an LTCC front-end is perhaps a buck and a half, and if you come up with a TX module and a -- really creative integration platform, you can get it all.

Of course. Right.

We have a couple of phones where we have it all.

Okay. And one other question. On the quad-band PA answer to remote phones, will they -- will they be into [INAUDIBLE]?

No. No.

Right.

and it's being incorporated initially into a U.S. base phone.

It will not -- the phone won't operate a quad band.

And we'll take our next question from Lane Carroll of Adams, Harkness and Hale.

Yes, thank you.

Dave, can I just go back to a couple questions ago when we were talking about the dollar content in the base station.

In a $50 to say $70,000 base station, the dollar contents at Alpha you're saying is in the tens of dollars?

No.

Not -- it really depends. You know, we have more in the high power base stations. It really also depends quite a bit on whether or not we have the filter combiner. I'll give you an example, in a high-powered base station, if there is a ceramic cavity or filter combiner technology, we would have those resonator filters and they could be, you know, $10 to $30 or $10 to $40 a piece, and there are several of them.

We also have the magnetic or the ferrite that will go in the isolator, that's a few dollars.

And then we have high-isolation switches, gallium arsenide, directional detectors, gallium arsenide attenuators, high-isolation switches, gain block amplifiers, so it's very really dependent upon the architecture.

In a lower power base station, we tend to have less, obviously.

So I would say it would be quite a bit less, and if it's a MCPA or a highly linear amplifier application, we can get anywhere from say $7 to $25 in components or widgets that improve the linearity of the amplifier.

Okay. So it could get upwards of $100 per base station.

It sure could, and a high-powered goes over that.

Okay. The win with Samsung and congratulations on that, is that a first win with Samsung on the handset side?

It is.

It is the first we -- on the handset side, Samsung's been a base station customer of ours. It's the first win in Samsung in some time. We've done business with Samsung and handsets

in the past, but its been -- it's been a couple of years, and we haven't participated in this series of very high runners successful CDMA form platforms. That's where the switch is designed in, and its going into more then one phone.

Tell me this, was the sales call done in conjunction with Conexant? Are we starting some synergies here and benefits?

Absolutely not.

Okay.

I think there are benefits, and the benefits are the fact that Samsung among other top customers, they like the idea of this combination. So, I think that obviously makes it easier for our Alpha sales team or the Conexant sales team to get early wins, because they know that this deal's going to happen and they like the road map.

Okay.

I think it was Paul that was talking about the break-even, the 150 million with Conexant. What type of gross margins are assumed with that 150 million to get to break-even and also the [off-x], as a percentage of sales.

Lane, at this point and time, I'd like to beg off giving the details, because as Daves indicating, we're looking at all aspects of sizing the business and making it appropriate.

And so, I think it's a little bit premature to give that little detail.

We're also in registration.

And we'll take our next question from [Kalpesh Capedia] of C.E. Unterberg.

Good afternoon, guys. Dave, you mentioned the 130 million [INAUDIBLE] 130 million revenue in June quarter for the combined company and break-even point lower than 150 million.

Could you help us understand a year down the road when the integration is up and running and then the combined company, what

the operating model could look like?

Well, we're going to have to beg off on that right now, Kalpesh.

We just can't give -- we really can't give a lot of detail. We're in registration, and I hate to -- I hate to hide behind that, but that's a fact of life. But you know, you know us pretty well, and I think any successful semiconductor companys got to strive for operating margins to get into the double digits and -- and gross margins that are respectable, and we're looking a company of this size and magnitude having significant critical mass to become a low-cost producer, and we're seeing detailed plans that confirm that earlier assumption. So, I can't give you details, but we're going to work this real hard, and we're going to squeeze our product cost as hard as we possibly can so that we can both take share and deliver strong margin performance.

The next question relates to the transmit chain module, the Alpha integration module that you have pre-production order for.

Yes.

When will you start seeing the revenues from that part, and how much would be the dollar content improvement over the current switch or the [INAUDIBLE]?

We -- our customer expects to be ramping this in the summertime. So it's the July-August-September timeframe, and we get several dollars in those phones.

Okay. And the question for Paul, the infrastructure revenues, you know right now the market is at a low point, when -- when it actually returns to a steady state, what kind of steady state infrastructure revenue can you come back to?

I mean if I look back at last year, you were in, you know, about $8, $9 million

range from infrastructure not too long ago. Can you bounce back to that level when the market returns to normalcy?

I see no reason why we wouldn't be able to.

We have been positioned and designed into many slots, as Dave has indicated, that especially some of these newer linear amplifiers that have additional circuitry around them that gives us higher value added. And so, once there is a rebound, we're well positioned in taking revenue, so I see no reason why we shouldn't be able to get back to those levels that we were at.

Kalpesh, we use to be a lot higher than that.

I know that, yeah.

I'd be disappointed at steady state if we weren't able to get to at least that level.

Thank you very much and good luck.

Thank you.

We'll hear now from Dale Foul of CIBC World Markets.

Good afternoon, gentlemen. When we take a look at your results for the quarter, obviously you're very heavily leveraged to your top line, your cost of sales is essentially flat.

Is your -- you stated earlier that your break-even Alpha loan is now 40 million; is that correct or is it below that right now?

It's around 40 million. If you use last quarter, it was slightly higher.

And so this is the primary reason if we get the 10% sequential growth, that's where we're getting the 400 basis points in the gross margin, we are see only a slight increase in the cost of sales here, Paul?

That's correct. We'll see the leveraging at the cost of sales, with operating expenses staying relatively flat with last quarter.

And Dave, when you talked about the ramp that we're going to see in the June quarter, can we expect that the ramp of several of these products where your ASP's for phone are going up nicely that we could see a stronger ramp for Alpha loan sequentially in the calendar 3rd and 4th quarter?

Um, should we be stronger than what you're seeing in the June quarter?

Yes.

Yeah. We are not going beyond June at this point, but I'll say this, that the products that didn't ramp in March that are ramping in June continue to ramp throughout the Summer.

The TX module begins to ramp in the Summer through Fall and into next year. That's going into multiple 03 platforms, as is Quad Band. So, my expectation is the infrastructure stops dropping and hopefully begins to come back at some point. We've got the products and that these module products begin to gain more traction and we would expect, we would hope snowball.

And then, as result of the combination the Conexant operation, I know you're looking at all things to lower the cost.

Is it conceivable that the

Alpha alone cost or break-even, Paul, is going to drop below the 40 million line?

That's correct.

Because we'll be looking at the synergistic outlook for both groups, not just looking at one side. And obviously, we'll take the

best in class where it should be done. And so I would expect that Alpha's break-even would in fact drop.

Dale, I'll give you an example, we will own Mexicali, and the reason we liked it is on a variable cost basis, we think we'll have the lowest packaging cost in the world, and that directly applicable to our power amplifier.

So, there's a lot of as Paul, mentioned, a lot of cost synergy we can execute.

And as far as the leverage when we're talking about the leverage that you, Alpha, have currently to your top line, is it a similar situation at the Conexant operation, or is it not as leveraged as you are at Alpha?

Well, I think that they also have the leveraging, they are in the semiconductor business and so, again, the same parameters provided in there, that the more that they can shrink the overall size of the dye and utilize the fixed capacity in both areas are underutilizing their fixed capacity, they should be the same type of leveraging. It may vary from product to product.

Dale, on of the issues that we have is that the combines company, if you were to just look and add the two together, add the publically available information, the S4 from Conexant and our data, the R&D number is very high.

And the only reason we've lived with a high R&D number is that we think we're going to take share. We're going to add more compelling, more highly integrated products. In the case of Conexant, their systems, there DCR's. In the case of Alpha, their RF front ends.

And we'll move on to [John Lowe] of SoundView Technology Group.

Yes, hi.

Thank you. Just some general questions on background for a low-temperature, cold-fired ceramics. I was wondering if you can go over some, such as the temperature handling and the cost versus the laminate.

And finally, do you find that the LTCC is a bit more critical applicable to the RF switches, passes, of the base stations, or both? Thank you.

Okay.

Great question, but very technical. It is, today, more applicable to the passes and the switches because it's -- the reason -- the advantages are cost and size. If you take a high-Q ceramic layer metal, it's very inexpensive.

It's produced by the billions in the cermanic capacitor world, and you're able to think, essentially, think of it as taking the -- a lot of the discretes, the resistors, the passes, and including them, if you will, for free embedded in this multi-layer platform.

So your band pass filters and so on, your resistors your capacitors.

So you take the parts count way down on your module. It can be small, because the ceramic is high-Q and multi-layer, versus the BT laminate.

The issue as to whether or not it adds a lot of value on the power amplifier is one that's debated for a PA as a stand-alone.

However, if you're doing a full-up RF front-end, there's going to be some LTCC content in there, because it's the only way to significantly reduce the complexity of the design, that we know of.

Okay. And again, although I may have missed it, and this is applicable also for base stations and PA's?

It's applicable for -- it's not applicable, we haven't seen it, but we're not looking at it for high-power base station amplifiers.

Okay.

So the answer is no. It is applicable in base station applications -- at the component level.

Okay then. Thank you.

You're welcome.

And we'll hear now from [Mark MCKENZIE] from Bank of America.

Oh great.

Thanks. Couple questions for you. Could you talk about what your visibility on March is, in terms of how much you have booked versus turns business,

And if you see it relatively uniformly loaded, or is it back-end loaded? How do you talk about that?

Actually, Mark, the last coming out of the March month and into April that we've seen progress in terms of order inflow, and we're looking at that we would need somewhere between 20 and 25% turn business.

Gotcha. And is that going to be spread across the months, or how do you see that?

Yeah. Given the order rate in the beginning of this quarter as well as coming out of the end of this quarter, we are expected to be more level loaded.

Gotcha.

And then, again, a couple of questions on them. Some of the customer shipments, I might have missed it, but some of the business that Motorola pushed out a bit, I mean,

is that part of your June guidance? Do you have that coming back starting up in the middle of the quarter or so?

June will be sequentially -- Motorola will be sequentially higher in June, so that's correct. And it's really these new products going into production.

It's those guys. Okay. And then the Samsung CDMA, the switches there, is that -- that's also part of the June guidance?

Well, it's not a lot. I mean, it's coming in in June. While the volumes are fairly significant, it's really back-end loaded. So, not a lot. There's a little bit in there, but not a lot.

Moving now to Chris [Versache] of Sigmond Boeings Ramsey.

Hi, guys.

Just a couple questions for you. Trying to understand and getting back to the rationalization and looking at the cost structure for combined entity, are you guys saying that R&D is indeed on the table to try and take some costs out of that,

or not?

No, what I'm really saying is that, well, everything's on the table.

Everything is on the table, because this business has got to be profitable, and we recognize the market that we're in, and we've got to figure out how to leverage both the top line and the bottom line. So from that point of view, everything is on the table. However, my comments on R&D were really directed at the fact that you accept a higher level of R&D investment as a percentage of sales, only when your business people and your technologists can demonstrate a credible plan to drive top-line growth and take share.

And that's why you live with a higher R&D. That was really my comment.

So, I very much like and am in favor of the system solutions business Conexant is engaged in, the direct conversion radio business that they're engaged in. I think we can combine our products and do things that are even more compelling on the RF front end. So I like that business, but I only like -- I like it in the context of leveraging that R&D line. Because when we start out, it's too high as a percentage of revenue but it will come down as we accelerate top-line growth.

Okay.

And just two other quick questions. I know that, you know, after the merger you guys will be roughly 90% of your mix will be coming from the handset market. Are there longer term plans to broaden that out and kind of, you know,

bring the infrastructure piece up and attack some of the other areas as well so it's more of the balanced mix over time?

Again, I can't get into a lot of details here, but I'm very much in favor of having a business that's diversified, but only diversified in areas where have the core confidence where you can win, where you have some differential advantage.

So the markets I very much like, because was can do it, and we can demonstrate leverage on the base station business. Lower volume but higher ASP and higher margins. And I like some of the wireless data applications that show

promise where we have a technical differential advantage.

Okay. And then just a quick last one. Are you guys seeing any beneficial raw material costs in, say, you know, either substrates or wafer pricing [INAUDIBLE].

By virtue of the merger?

No, just in general today in the market. You know, say either quarter-over-quarter or the last couple of quarters?

There has been some, as when you have, you know, excess capacity over demand that there's a tendency to have more favorable pricing.

And so we're seeing some benefit

from that.

We will move now to Mike Whitfield of Wachovia Securities.

Thanks.

Good afternoon. I have a question regarding reference reference designs that many design houses are putting out today. Conexant has one, Motorola. Can you say how many of those designs, in general, Alpha is

in and what is the range of content?

I'm not sure I understand the question. Let's try again.

For example, if you take as an example, Conexant's system business where they sell a complete phone reference design to an OEM, to a handset manufacturer, third party.

Do any of those reference designs include Alpha content.

Oh, I see.

Okay. The answer is yes, with a host of customers, and that list is growing. There really are two ways we participate in reference design. One, if you're making a power amplifier or even this next generation transmit module, there are several things you need.

You need to have discrete semiconductors. We make them. Our competitors don't typically don't, You need to have a strong, integrated multi-throw switch capability.

We have it. Most of our competitors do not. You need in-gap PA, you need PINs and that sort of thing, PIN diodes.

So, the front-end module strategy that Alpha as a stand-alone has had has been to take those technologies and complement them in a module where we have higher content than our competitors.

Conversely though, our competitors are coming to us and saying, look we've got to have gallium arsenide, we've got to have switches, protectors, and so on in our module. So we have several customers that are buying components from us that are being incorporated into their modules. We also have products that we're selling -- I wouldn't necessarily call it a reference design, but that are being sold where a customer will have, for example, a cable modem chipset and will have as part of the application notes our switches or our amplifier. And so we get revenue by virtue of that, if you can call that a reference design.

Can you potentially put a range on some of the ones that are handset centric.

You mean a dollar range?

Yes.

Well, it's -- I tell you this, it's difficult to do that, but it is growing, because what we're finding is, in fact I had a discussion today with the fellow that runs our discrete semiconductor business, and he is seeing a shift where the OEM's are buying fewer of that class of components direct, because they're buying modules.

Now they're buying some of those modules from us, or they're buying from a competitor.

That competitor then needs to buy the content. Almost none of our competitors have the process breadth for RF semiconductors that we do.

So they need to go to somebody to buy the components as the level of integration rises. So it's getting bigger.

And we'll move now to a follow-up from Blaine Carroll of Adams, Harkness and Hale.

Yeah. Just a couple of quick ones. Did you give out the number on the modules, the percent of module business during the quarter?

No, we didn't and we don't typically disclose that.

Thanks. I remember a couple quarters ago talking about 300,000 modules with 92% yields. Have we moved away from giving out that information?

Well, we're -- we were giving out that information because we were ramping those modules.

What I think is significant about it is the 91% yield was relatively a few modules behind us. We've shipped many hundreds of thousands more, and that's where the top line growth is coming from.

And the yields continue to run in the 90-- north of 90% range. So what's significant about it

is the fact that the yields have come up very quickly for us.

Okay. Thanks.

You're welcome.

And we'll take another follow up from David -- from Dale Foul of CIBC World Markets.

Yeah.

Quick question. When -- you see many forecasts from a number of your customers out there, are their forecasts for handset ramps in the second

half of the year stronger than their forecasts for handset shipments in the first half of the year?

In general, yes.

In general, yes, they are. I would say that the Summer still looks to me, you know, gaining inputs from all over the place, the Summer still looks to me -- the late Spring and Summer is where there's really a push on to get every latest phone out on the market and the latest feature set, with the expectation that late Summer, Spring, entering the end of the year is where many -- our many consumers actually purchase their phones.

So I see that seasonality, Dale, very much still being planned upon.

And so it's conceivable that similar to what you've got, you're just beginning to see some of the ramp-up of some of these contribute this quarter and then, in your own words, accelerate next quarter beyond, and so the handset manufacturers are almost following that same sort of theme from what they're telling you?

Well, I think it's really coming from the -- coming from the specific designs.

I mean, it's where we have gained a socket on a specific phone, and that phone coincidentally is ramping through that period of time.

But I think there is a trend for many phones to ramp during that period of time. So it is a market phenomenon, I believe, as well as an area where we're beginning to gain traction with these new products.

And could you talk just real briefly about some of the complex new modules that you're making are, of course, difficult to second source.

How are you dealing with that situation

with your customers?

Well, you know, we don't.

We've had a couple of -- what you're alluding to is, if you move up the integration chain too quickly, your customers are faced with a dilemma which is, Look, we're going to have to have a sole source here. And there aren't very many customers that are intimate enough with a supplier to be willing to do that.

So you get the "chicken-and-egg" phenomenon. And we've had that happen to us. We've had really we thought compelling solutions that didn't get any traction as well as we could, because the customer came back and said, Hey look, there is no other competitor that's been able to step up and get it done. In the case of the high-level products, these are new phone platforms, and our customers have been working with us, and in the case of one of the products, for example [INAUDIBLE] another supplier lockstep, and basically dealing with split share between two, because they very much would like to have two sources of supply.

It is a fact, though, that as chip sets and solutions become more dominant, you see more and more customers that are going sole source with the entire line-up.

And that's just a fact of life, because

you can't get two complete chip sets with software wrapped around it to work the same.

And we'll take our next question, our final question from [Kalpesh Capadia].

Dave, you mentioned having cross-setting synergies and using your Motorola leverage to get Conexant CDMF products in.

Just curious, when will we see

first Nokia, GSM, and, you know, Conexant has Nokia as a good [CDMF] customer.

Wow.

Boy, I tell you that's, you know, right on the top of all of our strategic plans. Getting into Nokia's GSM business, which we, if you look at the product line-up, it's a pretty compelling story that we can tell.

Clearly, that's very very much on our radar, and I'm not going

to for a minute pretend to be able define when that's going to happen, but, boy, it's right up there on our list.

Well, good luck on that.

Thank you.

I'll turn the conference back over to Mr. Aldrich for any additional or closing remarks.

Well thank you very very much for listening. Great questions. I look forward to speaking with you again soon.

And that does conclude today's conference call.