Synaptics Inc (SYNA) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synaptics third quarter conference call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference please press the star, followed by the zero for operator assistance. As a reminder, this conference is being recorded, today, Thursday, April 21st, 2005.

I would now like to turn the conference over to [Alex Weiland] of The Blueshirt Group. Please go ahead, sir.

Good afternoon, and thanks for joining us today on Synaptics third quarter conference call. This call is also being broadcast live over the web, and can be accessed from the Investor Relations Section of the Company’s web site at synaptics.com.

With me on today’s call are Francis Lee, President and CEO of Synpatics, and Russ Knittel, the Company’s Chief Financial Officer.

We’d like to remind you that during the course of this conference call, Synaptics will make forward-looking statements, including predictions and estimates that involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the Company’s forward-looking statements.

We refer you to the Company’s SEC filings, including Form 10-K for the fiscal year ended June 30th, 2004 for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information.

And now I’d like to turn the call over to Francis Lee. Francis.

Thanks, Alex. And thanks to everyone for joining us on the call today.

I’m pleased to report that Synaptics had another terrific quarter, achieving both record revenue and net income. Revenue for our third fiscal quarter was $56.7m, an increase of 65 percent compared with $34.3m in the same quarter last year. Net income was $11.7m, up 233 percent compared with $3.5m in the same quarter last year. Resulting in earnings per diluted share of 38 cents compared with 13 cents in the year ago period.

As expected, going into the March quarter, a similar decline in unit shipments in the notebook market was offset by strong demand in the portable digital entertainment market. Our solid performance in what is typically a seasonally weaker quarter reflects our successful efforts to diversify our business.

Revenue outside the PC market grew 11 percent sequentially to approximately 48 percent of total revenue. This is up from 43 percent of the revenue mix in the preceding quarter and represents our highest quarterly revenue today from new markets. Revenue from PC applications represent approximately 8 percent, following industry wide seasonal declines. We’re entering into the June quarter with a very healthy backlog of $31.2m.

During the current quarter Synaptics and [inaudible] entered into the cross licensing agreement with Alps Electric. This agreement is a testament to the fact that we take our intellectual property rights very seriously, and it has resulted in a mutually beneficial settlement which included a onetime payment to Synaptics. We do not believe this agreement will change the current competitive landscape in our key markets, and we are very happy to have this issue behind us.

Additionally, we have made a strategic decision to participate on approximately pro rata basis in a private equity financing of our spin-off company, Foveon. As many of you are aware, Foveon is developing a unique [inaudible] three-layer imaging sensing technology that potentially enables more efficient use of silicon, resulting in lower cost, more size, and better quality, versus today’s digital imaging technology. While there are inherent risks in any development stage company we believe that Foveon’s technology is synergistic with Synaptics’ focus on human interface solutions.

Today, we also announced that our Board of Directors has approved a stock buyback plan, authorizing a repurchase of up to $40m of the Company’s outstanding common stock. We believe this is an excellent use of capital at current share price levels, and this decision emphasized our focus on stockholder value and our confidence in Synaptics’ future prospects.

Now, I would like to make a few comments about our progress during the past three months. We continue to expand our revenue base within the PC market through a couple of initiatives. Last quarter I announced that we had secured two design wins with our LightTouch capacitive multimedia button. I am pleased to say that the reason [inaudible] Toshiba [inaudible] utilizes this solution, and we expect our second design win to be announced within the next six months. In the Toshiba implementation our LightTouch solution combines LED lighting with capacitive buttons to manage multimedia controls. There continues to be widespread interest in this unique design concept, and I look forward to sharing our progress with you and additional implementation throughout the calendar year.

In addition to LightTouch, last quarter I announced that we had secured another design win in the PC peripheral market. I am pleased to say that we remain on track with this design, and expect to begin shipping products within the next three months.

Turning to the portable digital entertainment segment. We announced a custom interface solution for LG JM50 digital music player. This unique LightTouch interface consists of a nine button array, with each button hosting a tricolored LED. This multi-color, multiple tricolored LED allows the user to choose between nine colors to customize their interface.

Also, in the portable digital entertainment segment, both [inaudible] and Apple expanded their product line during the March quarter with devices that use the Synapatics interface solution. Apple introduced two models, a 6 gigabyte [inaudible] and a 30 gigabyte IPOD photo, created through the advanced layer by 20 gigabyte layer with the interface design based on the popular [Zen] Micro.

We continue to see strong design activity in the digital music player market, and have secured several additional design wins during the quarter with both existing and new customers. We are pleased with our progress in diversifying our customer base within this segment, and we strive to replicate the success that we have had with this strategy in the notebook market.

Finally, on the mobile front, I am pleased to announce that we have secured a first design win with a major mobile phone OEM. The successful design win is a combination of much hard work in Synaptics to develop a compelling interface solution for the cell phone market. We [inaudible] significant value to the mobile phone market by increasing content, such as photos, music, and game, make it’s way on to these devices. And we are excited to participate in this market during such innovative times. We hope to update you on more specifics regarding this design win within the next three months.

Before I turn the call over to Russ, I would like to address the ongoing speculation regarding Apple’s intentions concerning whether or not it will continue to use our products. Unfortunately, we don’t have any further update for you today, as we don’t have any definitive information that we’re able to share.

As per our February 8-K filing we had indicated that our interface solutions are being used in the current generation of [hot disk drive IPOD] products. Clearly, should Apple elect to stop using our products it would have an impact on our results, and while it would represent a bump in the road I am confident that we have the right strategy in place to ensure our future success.

In light of this issue, I think it’s important to step back and review the way our business works. As you know, we supply our OEM customers through their contract manufacturers to which we [inaudible] product introduction in fiscal ’96, we compete for design wins on a product-by-product basis and have no assurances from OEM customers that they will use our interface solutions in their future products.

Despite not having definitive business arrangements and agreements with our OEM customers we have developed very solid, longstanding relationships based on demonstrated track record of technological leadership, design innovation, engineering, and operational support, product performance, and quality, and onetime delivery.

One of the constants in business is that companies have to be prepared to face competition from all corners, reflecting the fact that market dynamics are inherently unpredictable. Our forward-looking guidance is based on backlog and the six-month rolling forecasts that we generally receive from our customers. As a consequence, other than general industry forecasts our ability beyond a six-month horizon is relatively limited.

Given this dynamic, one of the Company’s key underlying strategies is to diversify our business by expanding the number of markets we serve, and by working to build a broad customer base within each market. We have demonstrated strong progress across this effort, culminating in a long roster of customers within the portable music play segment, and now our first design made in the mobile phone market.

Despite the current uncertainty, our business remains strong, and we expect fiscal ’05 to be nothing short of a stellar year for our Company. I’m very proud of our employees and their consistent, excellent execution in the challenging market that we serve. We are all very excited about our entrance into the cell phone market. The continuous progress we are making within the portable digital entertainment and PC peripheral segments, and our continued momentum within the notebook sector.

We believe we are well positioned within the competitive landscape. Our cross licensing agreement, [Alps], demonstrates the importance of our intellectual property, which remains in a growth strategy as we continue to expand our markets. And coming for another strong quarter of design wins and overall design activity, we remain confident in our growth strategy which we believe will lead to further revenue diversification over time.

I will now turn the call over to Russ, who will review our detailed financial results for the third quarter and provide some guidance on our business outlook.

Thanks, Francis.

Unless I specifically note otherwise all the numbers I discuss regarding our quarterly results will be on a GAAP basis.

Revenue for our second fiscal quarter was 56.7m, essentially flat compared with last quarter’s 56.5m, and an increase of approximately 65 percent compared with 34.3m in the same period last year.

Revenue outside of the PC market increased approximately 11 percent sequentially, representing 48 percent of total revenue, reflecting the adoption of our product solutions in the high growth portable music player market by an expanding customer base.

Unit shipments into the notebook market were seasonally down, as anticipated, while revenue from our PC peripheral and desktop applications were relatively flat, resulting in a sequential decline of approximately 8 percent in our overall PC revenue.

Within the notebook market we did see increased demand for dual pointing applications where revenue increased 9 percent sequentially, representing approximately 15 percent of total revenue.

Gross margins for the quarter were in line with expectations at 46.2 percent, compared with 46.7 percent in the preceding quarter. We continue to see the benefits of our ability to provide our customers with innovative engineered solutions in applications, as well as our ongoing focus on cost improvement programs.

Total operating expenses for the quarter were 11.2m, including 71,000 of non cash charges from the amortization of deferred stock compensation, compared with 10.7m in the preceding quarter which included approximately 85,000 of non cash charges from deferred stock compensation.

The 4 percent sequential increase in operating expenses reflects higher compensation costs related to increased staffing and higher payroll taxes as we enter the new calendar year, plus higher costs related to compliance with Sarbanes-Oxley.

As has been widely reported, the direct costs associated with implementing SOX Section 404 have been higher than anticipated, and our experience has not been any different. And, in addition, we’ve also seen its impact spread to other related areas, such as directors and officers insurance. The increased compensation compliance costs were partially offset by lower project expenses related to some of our development efforts.

R&D costs were 6.2m, roughly flat compared with the prior quarter. SG&A costs were 4.9m, compared with 4.4m in the prior quarter.

Total headcount at the end of March was 212, compared with 204 at the end of December. Our headcount will continue to increase as we actively recruit to staff our internal and external initiatives, and meet the demands of our increased business levels.

Net interest income was 635,000, up 389,000 compared with the 246,000 in the prior quarter, reflecting the combination of higher average cash balances resulting from the net proceeds of the $125m convertible note offering which closed in early December 2004, and higher average interest rates on our invested cash balances.

Our effective tax rate for the quarter was 25.4 percent, compared with 38.9 percent in the prior quarter. The reduced rate reflects the benefit of the release of a tax contingency reserve for tax issues that were settled during the quarter, coupled with the true-up of our tax rate for the year, which we now expect to be in the 37 to 38 percent range as a result of higher profits and lower tax jurisdictions.

Net income for the quarter was 11.7m, an increase of 20 percent compared with 9.7m in the prior quarter, and an increase of approximately 233 percent, compared with the 3.5m in the comparable quarter last year.

Earnings per diluted share for the quarter were 38 cents, compared with 33 cents per diluted share in the prior quarter, and 13 cents per diluted share in the comparable quarter last year.

Now, a few comments on our balance sheet. We ended the quarter with total cash and short-term investments of 232.6m, up from 229.9m at the end of the December quarter. This increase reflects our strong earnings, solid working capital management, and employee stock option exercises, partially offset by the purchase price and construction process at our new corporate headquarters in Santa Clara.

Cash flow from operations was approximately 11.3m for the quarter, primarily reflecting our strong operating results. Stock option exercises and the employee stock purchase plan contributed approximately 1.9m for the quarter. Capital expenditures were approximately 10.5m, and capital depreciation was 277,000 for the quarter.

Receivables at the end of March were 32.4m, down from 34.6m at the end of December. DSOs declined to 52 days, compared with 55 days at the end of the prior quarter. Our inventory levels decreased slightly to 10.8m at the end of March. Inventory turns in the March quarter were unchanged from the prior quarter at 11 times.

Assuming there are no further postponements we expect to adopt FAS 123R in the September 2005 quarter, at which time we will include as expense on our P&L the theoretical grant date fair value of both employee stock options and employee stock purchase plan shares.

Because share based compensation expense does not represent the use of cash, once we adopt FAS 123R we plan to supplement our financial reporting with non-GAAP results that will exclude the compensation expense and related tax effects associated with stock options and our employee stock purchase plan.

We believe the supplemental information will be helpful to our shareholders and the investment community in providing better transparency and historical comparability of our core operating results.

Now, I’d like to make a few comments regarding our near-term business outlook. Our backlog during the June quarter remained strong at 31.2m. Based on our current backlog and current indicators, we anticipate revenue in the June quarter will be approximately flat with the March quarter. This forecast reflects our view that we will see strength in the notebook and PC peripherals market, offset by overall softness in demand for portable digital music players.

You will note that our press release did not include our typical directional guidance for the next quarter which, in this case, would be our September quarter. We take giving guidance seriously, and we’re reluctant to do so if we’re not comfortable with our visibility. Given the fluid nature of the current situation we are not comfortable providing guidance at this time. Having said that, we also realize it’s helpful to you to have some indication.

So, based on the information we have today we anticipate that our revenue for the September quarter could be in the range of 52m to 58m. Based on current backlog we expect gross margins in the June quarter to be similar to the March quarter levels. We expect operating expenses to be up sequentially, primarily reflecting the impact of anticipated staffing increases and higher project related expenses.

Net income per diluted share for the quarter is expected to be in the range of 36 to 37 cents including the impact of the onetime payment from Alps Electric. Excluding that onetime payment we expect our net income per diluted share from ongoing operations to be in the 29 to 30 cent range. Non cash expenses related to the amortization of deferred stock compensation are estimated to be approximately 70,000 in the June quarter.

As Francis noted earlier, we have made the decision to participate in a private equity round for Foveon. Since the terms and participants are not yet finalized, the timing and accounting treatment of this investment is not yet set. We expect our investment to be in the mid single digit million.

In closing, we remain focused on our diversification strategy as we expand our product offerings in the PC market, broaden our customer base in the growing portable digital entertainment market, and make our entrance into the mobile phone market. As Francis mentioned earlier, fiscal year ’05 will be a record year for us, and we believe that we’re taking the necessary steps to position the Company for future growth.

That concludes our formal remarks, and we’ll now turn the call over to the Operator to start the q-and-a session.

[OPERATOR INSTRUCTIONS]

Our first question comes from Joel Wagonfeld with First Albany. Please go ahead, sir.

Thank you. Two questions. Just a clarification first on the tax rate. I think you had said that you expected it to be 37 to 38 percent for the full year, is that correct? And if so, does that imply a much higher tax rate in the fourth quarter? If you could just maybe comment on the tax rate for the fourth quarter that we should be using?

And then, secondly, the June guidance is now flat instead of up sequentially, I believe, as you had mentioned previously on last quarter’s call. It appears that that’s related to incrementally softness in the portable market that you hadn’t alluded to before. Where is that coming from, and does that include any assumption about loss of any Apple business related to their music business, or is it just incrementally a change in how you view the strength of that market?

Okay. Joel, the tax rate of 37 to 38 percent is what we trued up to for the nine-month period, so we expect that the tax rate in the fourth quarter to be in the 37 to 38 percent range. So, as a result the year will be in the 37 to 38 percent range.

With regards to the revenue forecast at this point, you know, we have guided essentially flat sequentially. And, again, our view is based on backlog and the customer forecasts that we have that we’re going to see increases from the PC market offset by general softness in the portable music player market.

And from our perspective, looking at the customer forecast that we have it looks like that’s, it’s broadly expected by our customers that their unit shipments will be down quarter to quarter. So, for the first time it looks like maybe the hot market here is taking a little breath after many quarters of significant growth quarter to quarter.

And that is a change from previously you had guided to up sequentially in the June quarter, correct?

Yes.

Okay. So, it’s just a change in the volume seen at your customers in terms of their production?

Yeah, we did not expect to see declines in the forecast in portable music players.

Okay. Great. And it doesn’t have anything to do with any particular customer, it’s more across the board?

Again, when we look at the forecasts from our customers in that segment that view is reflected in multiple customers.

Okay. Great. Thanks very much.

Thank you. Our next question comes from Rob Stone. Please state your company affiliation, followed by our question.

I’m curious if you could add a little more color – sorry, the company affiliation, SG Cowen. Francis, could you add a little more color on the multimedia controller, give us a sense if it’s that type of interface is a similar ASP opportunity to your other single point devices, or how that influences your mix on revenue per platform?

Sure. Rob, I mean I think we have said in a number of times now that we see a stronger and stronger play in the consumer segment part of the business in the notebook area. And typically there is this industrial design, you know, that’s dominating a lot of the desire about why people select a certain computer. I think all of this multimedia buttons and stuff like that, in general is a way for them to manifest different kind of design opportunities on the notebook computers.

In this case, you know, Rob, what it really is really a role of what we call LightTouch capacity buttons that have LED [inaudible], and it lights up, and you react to it, just like how you would really push a mechanical button except, you know, it’s done in a very stylish way. And we continue to see a very interesting trend here in terms of, number one, OEMs trying to adopt it in ways to differentiate their local computer from others. And, secondly, it’s really a good use of the technology, and it looks really nice, you know, on this case, I’m talking about being a Toshiba computer.

From a pricing perspective it’s actually, first of all, it’s still early in the trend, of all the segments. So, people are still thinking about different ways of implementing the same kind of stuff. So, a lot of it is depending on how many LED, what kind of Led, the functionalities. It’s probably too early to say about what kind of pricing trend or impact it is. But I think if we use a similar kind of rule of thumb that we’re going to give on single pointing it’s probably pretty accurate.

Okay. And do you have any more updates on some of your other innovative features, you know, TouchPad with speaker, and things like that?

Yeah, I think those things continue to be discussed and reviewed with our OEM customers, okay. And they are all in various stages in terms of learning and adopting it, and trying to tailor it to their own specific models and brands. There is really nothing specific for us to report at this time, Rob.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from Joe Sullivan. Please state your company affiliation, followed by your question.

It’s Craig Hallum. Just a clarification on the guidance you gave. When you gave a specific number of 52m to 58m, what quarter did that relate to?

Again, Joe, we’re not looking at that as the typical guidance we give you in terms of directional guidance. We don’t have a lot of good visibility as we look out into the September quarter, but we know that you guys like to hear something from us. So, again, typically we’re guiding directionally, up or down. This is a case where based on the information we have today, you know, the September quarter could be down or it could be up, and so we're kind of giving you this soft range based on the information we have today.

Is the soft range based on any directional view based on your specific markets, notebook or the MP3?

It’s a combination of both markets, but the uncertainty at this point, I think, revolves more around the portable music player market. You know, as is always the case, you know, in the notebook market or the PC market there’s seasonal trends there that haven’t necessarily shown up in the same direction YOY in the last three to four years either. So, it’s really both, but probably primarily driven by kind of the surprise that we saw this quarter in just soft demand generally in the portable music player space.

And it relates to an early market, unclear is the view to the overall size of the market, or changes competitively, or with any specific customers?

I think when you look at, when you talk about the September quarter, I think it’s both. I think it’s a function of market demand and potential competitive dynamics.

All right. Can you expand on the phone win? Any description you can give of what the feature function will be with the design?

Yes, certainly, Joe. I mean, first of all, like I discussed in my talk earlier, I will talk more about it in upcoming next three months. And, frankly, the reason is our OEM customers have not announced the design win yet. But I can give you a general description of what it looks like.

I think I will talk about the value that we bring in this exciting market cell phone. Really in many ways, those cell phone expand functionalities, they really [inaudible] navigation, and in some cases, also they want to simplify the way of tech entry and interfacing it with the cell phones, right?

And we have a different platform, a different way, for example, navigation’s, right? So, what you’re going to see on the phone here, it’s going to [inaudible], okay, [inaudible] technology in helping the phone to interact with the users easily.

So, let me just leave it at that. And I don’t think you’re going to have to wait long here, Joe, and you’re going to see this product in the market, hopefully, in the not too distant future.

Any comment on the ASP view with this win, or what you expect for the market?

Well, I mean this is our first design win, right? So, one point does not make a trend, okay? So, I mean the same model that I’ve been talking about in terms of a solution you can almost apply it to in general to stuff like that. Although, like I said, it’s really the volume of their business is not materially move the needle one way or the other in the total scheme of things.

A question for Russ, can you help quantify what the option expense might be when we get into the next fiscal year?

We haven’t done our projections for the next fiscal year yet. If we were to take the same approach to the current quarter’s results or this year’s results, FY ’05, I think we would have expected to see an impact of somewhere between 20 and 25 cents.

Okay. Just one last question for me. You kind of just gave a roundabout on some new designs in the quarter in the MP3 side, I think. But can you help quantify that? Or how many designs you currently have in the market, or expect to come to the market?

Okay, Joe. You know, we have kind of stopped counting now, because after awhile we kind of lost the significance over time, okay? But I think the important thing to know there is we’ve got continuing winning designs in both new and existing OEMs, right? Okay. So, currently we are now shipping at least in six different OEMs in multiple platforms, and as we move forward, okay? Because of this ongoing design wins with both new and existing customers, you can expect that our shipment in the multiple OEMs is going to continue to increase.

Okay. Great. Thank you.

Thank you. Our next question comes from Andy Neff. Please state your company affiliation, followed by your question.

Bear Stearns. Let’s see, two questions. One, if you could just talk about competition in the music player market, if you could elaborate a little bit more on what you’re seeing there? Two, in terms of the softness that you talked about in the music player market, is that for a – I guess is that already reflected in your backlog? And I guess is that, A, something that you expect to see increase at level of competition? And, lastly, just on the tax rate, if you look at the issue this quarter, Russ, if you could just sort of take out the tax issues, what would the tax rate and EPS have been?

Okay. Let me comment, Andy, on the competition, and I’ll let Russ handle the tax rate here. While the music player market has been growing tremendously over the last several quarters and over the last year, Andy. So, when you have a market that is growing, and I mean competition is coming out of the woodwork, right. So, I mean I think there are known competitors out there that we have same products to, and there are probably competition that we don’t even know, Andy.

So, it’s tough for me to quantify how many are out there, and what it is. But I mean it’s comforting for me to tell you that in the case where our strength plays into the industrial designs, the ease of use, okay, we really, I believe remains the technology of choice, coupled with the fact that we don’t just offer technology but also offer outstanding operational and customer support, continue to be a winning formula for Synaptics.

I think in this segment pricing obviously is very sensitive, being devices that are in the $100, $200, or $300 segment levels. So, you know, I would expect competition would continue to be pretty intense and pretty brutal. And I would expect continuously new competition coming into this space. And so far, you know, our strategy in terms of diversifying our customer base, you know, leveraging [inaudible] work because it’s continuing to win design for [inaudible] existing and new customers.

Regarding the softness, I mean one must admit that one couldn’t expect the growth rate of the music player to continue to grow at the trajectory that it was growing, given the fact that some of those growth rates, problem have been resolved, some of the components [inaudible], shortages, for example, right? So, there have been a lot more of those products out in the marketplace.

As Russ mentioned earlier, you know, we really see a pretty broad range of forecasters coming to us, reflecting the softness. And by the way, some of the OEM customers who have reported earnings earlier than we have actually have a similar kind of a trend, even though, you know, we continue to be very exciting and good market. So, we believe the market is going to grow, except the growth rate is probably not going to be as well as what we’ve seen in the last several quarters, Andy. But we think it is pretty [inaudible].

Let’s have Russ answer the tax rate question.

Okay, Andy, through the six-month period we had reported previously taxes that would have taken us to an effective tax rate for the year of about 39.6 percent. Based on the release of the tax contingency we had because of an audit we went through and was settled, that released about $1.2m of tax contingency which has gone through the P&L. And then as I mentioned earlier, based on the higher profitability levels and lower tax jurisdictions, we also got the benefit of that in the quarter.

So, the combination of those two things was worth about 7 cents a share. So, without those in the quarter one of which is the onetime adjustment, the other true-up is related to ongoing operations, obviously. So, that was about 7 cents. So, instead of being 38 cents we would have been at 31 cents, and that 7 cents is split about 50, 50 between that onetime impact versus the true-up on our ongoing operating levels.

And any thoughts about what the tax rate could be next year? Or that’s going to drive that down? You still expect it to go down over time?

I would expect that next year based on the guidance that we’ve given prior that we’re probably going to be in the 35 to 40 percent range somewhere. But we haven’t looked at that yet. And, you know, there is also the tax implications related to the expensing of options, which is going to impact the way we do our provisions going forward, too. So, it’s a little early to tell.

Thank you.

Thank you. Our next question comes from [Toby Kramm]. Please state your company, followed by your question.

Hi, STG Capital. With the handset design win that you announced, is that factored into your June or September quarter guidance?

Yes, it is, except keep in mind, right, it’s probably in the total scheme of things it’s probably not material.

Okay. And you touched upon the kind of functionality that you might have, if you could just elaborate a little bit more if you’re able to?

No, I think I gave you a pretty good sense in terms of why people want our design or technology in there. I really don’t want to be any more descriptive than that, until the OEM has announced their product, Toby.

Were you engaged with any other OEMs, we might be able to see some more news on the horizon, or could you tell us where you are with that?

We certainly are not a lack of interest in terms of OEM world wide engaged with us, but there are all in various stage, and each company has a different way of introducing new technology, the new products. So, even though that we are talking to a number of OEMs it’s very difficult for me to translate that into a timetable, a future design win forecast.

Great. Thanks a lot.

Thank you. Our next question comes from Scott Barnum. Please state your company, followed by your question.

Credit Suisse First Boston. Quick question on the Foveon private equity round. Can you give us just a rough idea after this round what your ownership level would be?

Assuming that we participate approximately pro rata, and again the round isn’t defined yet and the participants aren’t defined yet, I would guess that we’ll probably end up in the low double digits.

Okay. And then with respect to the acquisition front, can you talk about what’s been going on there? And if you see anything that you’re working on right now?

Well, I mean, Scott, we continue to be very proactive and aggressive in looking at opportunities there. Obviously, we haven’t announced anything yet, but I’m pretty comfortable in telling you we continue to review a wide range of options and opportunities. And when it comes up, you know, we will, you know, talk to you about it. So, I think we continue to focus there, but then there is no specific timetable where we have to do a deal, Scott.

Okay. And then you’ve talked a lot about diversification of customer base. Within the non-PC revenue segment, you mentioned that’s about 48 percent of revenue. Can you give a rough idea of the breakdown between Apple and then the other players within that segment?

Well, as you know, Scott, we don’t report based on sales to OEMs because we don’t sell to OEMs. We sell to the ODMs, the guys who actually build their devices. The person that we, or the company that we sell to that makes the Apple products also manufactures other products for some of our other OEM customers. So, we haven’t commented on Apple specifically, and won’t for the obvious reasons.

You know, if you look at our non-PC related revenue today, the portable music player, total customer, of what we shipped to last quarter, as Francis said, we were shipping to six different OEMs last quarter in that space. Beyond that, we also ship to other customers for several other applications that aren’t big or material, but anyway it’s there.

Okay. Thanks.

Thank you. Our next question is a follow-up from Joel Wagonfeld with First Albany. Please go ahead, sir.

Thanks. You alluded to it, but I was wondering if you could just give us a sense for how quickly you think mobile handsets could ramp into a material opportunity?

Well, I mean, Joel, that would be a question that’s pretty tough to answer here, because I don’t really know the end market, you know, reaction in terms of how, and also the various progresses of the different OEMs in introducing additional models there. I certainly do not have, you know, unrealistic expectations that it will turn into something materially significant over the next six to 12 months, Joe.

So, it’s non-material in your forecast over the next say two to four quarters?

Yes, certainly is in the forecast that Russ has given to you, it is not significant at all.

Okay. Thanks.

Thank you. Our next question is also a follow-up question from Toby Kramm with STG Capital. Please go ahead, sir.

Thank you. What region, where was it?

I’m sorry, Toby?

Could you talk about what region the customer is in?

No, I cannot.

All right. Thanks.

[OPERATOR INSTRUCTIONS]

Our next question comes from [Richard Kayser], please go ahead, state your company name, followed by your question.

Sanford Bernstein. First, I have to apologize, we don’t follow the stock closely. I’m just trying to make sense of some of the recent dynamics in the stock price. It seemed that, you know, things were going very well with the IPOD development up until February; there was a report by an analyst that seemed to suggest you lost the IPOD contract. Stock lost about 50 percent of its value since then. You then published an 8-K that said that was wrong, and you still had the IPOD contract.

And I’m just wondering, you know, is there more that you can do from your side to communicate with investors so that people are more comfortable with kind of the outlook of this Company? I think you’re trading at sixteen times now. You made the estimates for this quarter, even beat on EPS, yet you’re trading down like 7 percent in the after market. Can you just give me some perspective on any of that?

Okay, Richard. I think during my discussion earlier in the day I kind of described, you know, the situation with Apple.

Right.

And also the dynamics of the Company, how we do our business going forward. As you know, Richard, we don’t have definitive agreements in general with any of the OEMs, okay? And literally we have to fight to earn our business, product-by-product basis, okay? And we have been more successful than we have not, right?

So, you know, during this time there’s a lot of speculation about that, and there’s really nothing definitive that I can share with you, other than the fact that the reason why we filed the 8-K, Richard, is also not something that we normally do when we introduce new products. But that’s because of so much speculation and stuff like that going on there, we decided to let everybody know that the product Apple has announced has our solution in it, and it’s just that, it is our solution in it, right? Okay?

We continue to be very proud in terms of diversifying our OEM customer base and serve whoever, you know, that has our technology in it. And we just let those other things take care of themselves, Richard.

That’s it, we have no further questions. Do you have any concluding comments?

Well, thank you for being on the call with us today, and we look forward to updating you again next quarter. Bye-bye.

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