Synaptics Inc (SYNA) 2008 Q2 法說會逐字稿

Good afternoon ladies and gentleman. Thank you for standing by. Welcome to the Synaptics Second Quarter Fiscal 2008 Conference Call. (Operator Instructions). This conference is being recorded today, Thursday, January 24, 2008. I would now like to turn the conference over to Alex Wellins with The Blueshirt Group. Please go ahead sir.

Good afternoon and thank you for joining us today on Synaptics Second Quarter Conference Call for Fiscal 2008. This call is also being broadcast live over the web and can be accessed from the investor relations section of the company's website at www.synaptics.com.

With me on today's call are Francis Lee, President and CEO of Synaptics, and Russ Knittel, the company's CFO. We would 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 10K for the fiscal year ended June 30, 2007 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 will turn the call over to Francis Lee. Francis?

Thanks Alex, and thanks everyone for joining us on the call today. I'm pleased to report record second quarter revenue and profit results for Synaptics, capping off a very strong first half of the fiscal year. Revenue for the quarter of $98.7 million grew 30% year over year. [Live] revenue for the 6-months period of $185.3 million was up 42% over the comparable period last year.

Non-GAAP net income for the second quarter which excludes the impact of non-cash shared base compensation was up 30% over the comparable '07 period at $17 million, or $0.60 per diluted share.

Non-GAAP net income for the first 6 months of fiscal '08 was $31.8 million, an increase of 63% over the same period last year representing $1.14 per diluted share.

Our quarterly results reflect solid growth across all of our markets. Specifically, revenue from PC and non PC applications grew approximately 21% and 62% respectively compared with the same period last year. Our PC revenue continue to benefit from solid demand for notebooks coupled with the growing adoption of our multimedia control modules and increased penetration in PC peripheral applications.

Our non PC revenues reflect strong demand from portable digital music players and increased penetration in mobile phone applications. As you will recall, in the first quarter of fiscal '08 we introduced the first of our advanced gesture technology, ChiralMotion along with new LG phones and Samsung MP3 players using Synaptics technology. Continuing this momentum, I would like to make a few comments about specific progress we have made over the past three months.

We are pleased to introduce new additions to our advanced gesture portfolio which provide improved usability for TouchPads in notebook PCs. Synaptics' Pinch and Momentum gestures on the notebook TouchPads are designed to richly enhance the notebook PC user experience. Our expanding PC-based gesture library redefines how notebooks are used in work and entertainment environments, all in a highly intuitive and industry standard manner. Synaptics new pinch gesture translates multi-finger input and performs zoom in and zoom out capability in a variety of popular applications. Our momentum gesture functionality gives our TouchPad track ball light functionality, which is very popular in many of today's electronic games. By flicking a finger across the TouchPad the cursor or selected object icon coasts across the screen with behavior that mimics a track ball.

I am also pleased that Synaptics is one of the founding members of Google's Open Handset Alliance, the first truly open and comprehensive platform for mobile devices. We look forward to participating in the development of the Android platform.

Turning to new design wins and products. The second generation Microsoft Zune features the Synaptics (inaudible), a smaller foam (inaudible) TouchPad that brings mouse like cursor functionality to the Zune stylish navigation pad. Our Click Pad has been integrated in the Logitech diNovo Mini, a palm size cordless keyboard that is optimized for entertainment use. Consumers can choose to use it as a TouchPad to point and click or switch to a directional mode to navigate menus and make selections. Recently announced at CES, the Logitech Harmony One Universal Remote Control features Synaptics ClearPad, a capacitive sensing technology solution combining a touch screen and capacity of buttons. This interface solution enables the user to interact directly with the display screen as well as the perimeter buttons off the screen. Replacing the (inaudible) mechanical buttons used on the older Harmony remote.

And our Clear Erase solution has been integrated into the Sony Vaio all-in-one type LPC. This is a widescreen display enclosed in the transparent frame. Synaptics is providing the [pen] button clearer interface that offers an intuitive way to navigate and choose from menu options, select content and control volume on the right side of the all-in-one PC's monitor. This product is now currently shipping in Japan.

Overall we are seeing strong design activities across our product sectors. Continuing our commitment to ongoing innovation, yesterday we introduced Boomerang, a completely button-less and keyless universal remote control concept designed as a command control center for all home digital entertainment. Boomerang demonstrates the functionality and industrial designed possibilities of Synaptics' core capacitive sensing technology. The concepts integrated into the Boomerang are available to OEMs interested in converting home and entertainment controls with an intuitive, easy-to-use, feature-rich remote without the clutter of mechanical buttons and keys.

We believe that our innovation and activity coupled with increased level of interest in Synaptics' Clear Touch solutions will contribute a revenue growth throughout the calendar '08 and beyond.

Moving on to corporate development. I'm pleased to announce some additions to our senior management team. Joe Montalbo has joined the company as our Senior Vice President of Engineering. Joe comes to us from Pixim, Inc. where he was President and CEO. Prior to that he was at National Semiconductor for over 20 years where he ran several engineering oriented businesses and product lines. Dave Long has also joined us at Synaptics as our Vice President of Sales. Dave comes to us with 20 years of experience from LSI Logic where he held various sales, field engineering and accounting management positions. His most recent role was VP of Worldwide Sales for Consumer Products. We welcome both Joe and Dave to our management team and look forward to their contributions as we continue to grow our company.

Turning to the discussion of the general business environment, our backlog entering the March quarter with $37.5 million. We believe that the backlog decrease from last quarter reflects caution on the part of our customers as we enter the seasonally weakest quarter of the year coupled with the uncertainty in today's macro economic environment. Coming off a very strong first half of the fiscal year, we remain positive despite a backdrop of general economic uncertainties. Whether or not concerns regarding the outlook for consumer spending materialize over the short term, one thing is certain. The long term trends to digital lifestyle products where we saw significant opportunities to leverage our technology to provide next generation interface solutions. We believe that Synaptics is well positioned for continued growth and profitability based on our market leadership position and expanding relationship with top OEMs across multiple vertical markets.

We are pleased with our ongoing design activity levels. And on track to achieve record revenues and profits for fiscal '08 with revenue expected to be in excess of the 25 to 30% year-over-year growth we guided you as we entered the current year. Additionally, we look forward to realizing the potential of our recent innovations such as our new gesture functionality for notebook computers to drive an even greater value-add to our partners and maintain our leadership position.

I will now turn the call over to Russ who will reveal our detailed financial results for the second quarter and provide guidance on our outlook before taking your questions.

Thanks Francis. In addition to our GAAP results I will also provide supplementary results on a non-GAAP basis which excludes non-cash share-based compensation costs accounted for in accordance with FAS 123R and certain non-recurring items which occurred in the December 2006 quarter.

Revenue for our second fiscal quarter of 2008 was $98.7 million, up approximately 14% sequentially and 30% over the comparable period last year, reflecting solid demand for both our PC and non PC applications which represented 74% and 26% of total revenue respectively. On a year-over-year basis our PC-based revenue increased $12.7 million representing approximately 56% of our total revenue growth. This strong growth reflects the combination of continued solid demand for notebook computers, the adoption of our multimedia control solutions within notebooks where the attached rate was approximately 18%, and our penetration into PC peripheral applications.

Revenue from non PC applications grew to $9.9 million year-over-year, representing approximately 44% of total revenue growth and reflecting the combination of increased demand for portable digital music player and cell phone applications.

Gross margin, which includes non-cash share-based compensation charges was 41.6% in the December quarter compared with 40.9% in the September quarter. Our non-GAAP gross margin was 42% compared with 41.2% in the September quarter. The sequential quarter improvement in gross margin is attributable to a more favorable product mix.

Total operating expenses were approximately $23.1 million in the second quarter which includes non-cash share-based compensation charges of $4.1 million. This compares with operating expenses of $21.2 million in the preceding quarter which included non-cash share-based compensation charges of $3.1 million.

Excluding the impact of non-cash share-based compensation in the December quarter, non-GAAP operating expenses were approximately $19 million, a sequential increase of $910,000. The sequential increase in non-GAAP operating expenses primarily reflects higher compensation costs related to our ongoing recruiting initiatives and increased project costs related to our product development efforts.

We added 34 employees in the second quarter bringing our total headcount at the end of December to 361 compared with 327 at the end of the September quarter. We expect our global headcount to continue to increase as we grow and scale the organization for the opportunities ahead of us.

Net interest income was $2.6 million compared with $2.5 million in the prior quarter, primarily reflecting higher average invested balances.

Our GAAP and non-GAAP tax rates for the quarter were 30.8% and 31.9% respectively. Our GAAP tax rate benefited from the qualified stock option activity during the quarter which as we have pointed out in the past will likely result in continued volatility in our future reported GAAP effective tax rate. We currently anticipate that our non-GAAP tax rate for the third and fourth quarters of fiscal 2008 will be around 32%.

We posted record net income in the December quarter,$ 14.2 million or $0.50 per diluted share, an increase of 52% compared with $9.3 million or $0.32 per diluted share in the comparable quarter last year which included a one-time restructuring charge of $890,000 net of tax benefit.

Excluding $4.5 million of non-cash share-based compensation charges and the associated tax benefit of $1.7 million, our non-GAAP net income in the December quarter was $17 million or $0.60 per diluted share. Non-GAAP net income in the December quarter of 2006, which excluded $3.9 million of non-cash share-based compensation charges and the associated tax benefit of $1.1 million and the non-recurring net charge was $13 million or $0.44 per diluted share.

Now a few comments on our balance sheet. We ended the December quarter with total cash and short term investments of $286.3 million, and increase of $25.1 million over the prior quarter. Cash flow from operations during the quarter was approximately $21.3 million and stock option exercises contributed approximately $8.2 million.

Capital expenditures in the quarter were $1.9 million primarily reflecting additional investment in infrastructure and test equipment and capital depreciation was approximately $908,000 for the quarter.

Receivables at the end of December were $66.9 million compared with $65.7 million at the end of September primarily reflecting the impact of the increased revenue level partially offset by better customer pay cycles.

DSOs at the end of the quarter were 61 days compared with 68 days at the end of the prior quarter. Inventories at the end of December were approximately $20.1 million compared with $19.5 million at the end of September primarily reflecting increases in our (inaudible). Inventory turns in the quarter were unchanged at 11 times.

Now I would like to make a few comments regarding our business outlook. Economic concerns have clearly impacted the general business outlook and our customer's behavior. During the month of January we have experienced soft order patterns, order push outs, and reduced customer forecast, including a significant decline in demand for portable music players, a market that has been more opportunistic for us on a relative basis. As a result, our current view for the March quarter is lower than the outlook we had three months ago. We now anticipate revenue in the March quarter will be in the range of $76 million to $82 million which represents an increase of 18% to 27% compared with the same period last year.

As we look out into the June quarter, our current view based on preliminary customer forecasts and trying to factor in the implications of the current economic concerns suggests sequential growth in the range of 11 to 19% relative to the midpoint of our anticipated March revenue level.

Based on the product mix and backlog and anticipated orders during the remainder of the quarter we expect non-GAAP gross margin for the third quarter to be around 41%. We expect our operating expenses to continue to increase based on our staffing initiatives and the growing pipeline of design opportunities. For the March quarter we expect the impact of FAS 123R on our operating margins to be approximately $4.5 million, unchanged from the December quarter. Non-GAAP net income per diluted share for the March quarter is expected to be in the range of $0.31 to $0.37.

As we step back for a moment it is important to note that despite significant choppiness in the market we are forecasting strong growth for fiscal 2008. If we assume the midpoint of our March and June outlook this would result in revenue growth of approximately 33% for fiscal year '08 along with record profitability for Synaptics. This revenue growth is ahead of the 25 to 30% range that we had forecasted entering the fiscal year demonstrating our solid execution and ongoing market leadership.

In closing, our record second quarter results capped off a strong finish to the first half of the fiscal year. We continue to see increasing levels of design activity and are confident that our systems know-how, our ongoing innovation and solid execution will allow us to take advantage of the growing interest in the adoption of Synaptics' technologies for human interface solutions that both enhance the user experience and our OEMs industrial design options.

That concludes our formal remarks and we will now turn the call over to the operator for the Q and A session.

Thank you sir. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Heidi Poon with Thomas Weisel Partners. Please go ahead.

Hi, could you maybe provide more color in terms of your outlook by segment. What does the decline you are factoring in for notebooks, digital movement players, and handsets?

We typically Heidi don't parse out the guidance we provide, but I can tell you that most of the drop sequentially is coming from the non-PC applications and primarily MP3 demand. And as we indicated earlier that is a market that is more opportunistic for us and generally have less visibility in that segment when we look out. I think the biggest drop in the quarter has just been the change in the macro economic environment in the last 90 days and the impact that has had on our customer's outlook going into the quarter. But we are still forecasting very strong growth year-over-year and feel very positive about the long term growth prospects of Synaptics based on the opportunities and design activities we have available today.

Okay, but in terms of the music players, do you see any concerns about channel inventory that could potentially make June even a little bit worse? Your competitor Cypress early today made a comment that the over hang could continue into June. Do you share that view?

We don't have any visibility into inventories in the channel as it relates to the end products and we certainly don't have any internal inventory issues as it relates to the products we provide into those verticals.

Okay, so your June outlook is based on basically what you are getting from your customers and that is primarily notebooks. So should we expect notebooks to basically once again be maybe 80%+ of your revenue?

Well again the June outlook we are providing is based on our current view from all of our customers from all other verticals that we serve today. We are expecting to see growth in all of the verticals as we move from the March to June quarter and that is all baked into our current outlook of sequential growth of 11 to 19%.

Do you expect your notebook business this year to grow with the market, or given that maybe the market share gain story last year has already played out. Where do you see that for you growth wise relative to the industry, [forecast] at 25%?

Okay, well as we have indicated before we really don't have specific objectives regarding market share. And as I'm sure you can appreciate at any point in time we have a whole host of opportunities available to us from our current customer base across all of the vertical markets we serve, whether they are PC or non-PC applications. And with the ongoing growth in the markets generally we find ourselves in a position where we can't possibly address all of those opportunities which means that we have to make informed conscious decisions on a daily basis regarding which opportunities we want to employ our resources on. And even with those that we compete for we obviously don't win every design we elect to compete for. So as I'm sure is evident from this process, share shifts within accounts occur all the time. And it is just part of our normal business day to day.

Okay. Finally are you seeing better traction in Light Touch or is this sort of staying around the 17% of the share of notebook revenue?

Oh, the attached rate for multimedia controls and notebooks -- that was up about 1% sequentially. Again we haven't forecasted where we think the ceiling would go but I think there is still some additional upside there. But it is a market at this point that, we have essentially created that market. It has attracted additional competition. We are still well positioned in the market. I think the exciting thing for us is the opportunity here that enhancing TouchPad usability with gesture functionality we think could have some real traction going forward.

With an increasing attach rate, would that put more pressure on gross margin? Are you sticking with the 40 to 45% target longer term model?

Yes, we still have not changed our longer term blended gross margin target of 40 to 45%.

Great, thank you very much.

Thank you, Heidi.

Thank you. Our next question comes from the line of Jeff Schreiner with American Technology Research. Please go ahead.

Good afternoon gentleman.

Hi Jeff.

Hey, I was wanting to kind of dig into one comment Russ made about, we know you don't have a lot of visibility into the media player market. But it seems your June guidance is really suggesting your have a little bit better visibility perhaps in your PC market. Could you talk about the visibility into your end markets that you guys currently have right now?

Well again, just to be clear here, for the guidance we have provided for the June quarter we are expecting growth in all of the verticals that we are serving today and we haven't parsed that out. The process we have for providing guidance is unchanged from what we have used in the past. We get rolling forecasts from our customers, generally on a monthly basis and the timeframe that those forecasts generally reflect is a 4 to 6 month view. In addition to that we have the backlog and the order patterns that we have experienced in the first month of the quarter. And we put all of that together, look at what the, if there are any extraneous concerns like the macro economic uncertainties that are out there today and we just try to put together our best view based on the data we have available at time as to what that next quarter will look like.

I think you have a couple more things to (inaudible) Russ a little more color in it, is obviously when we always talk about design activities part of that forecast that a customer gets is related to new product introductions that come online. So we also have some ideas when a product comes online should be reflected in the forecast in terms of the launch date and so on and so forth assuming that our OEM partners do not change it.

Another thing that we do get visibility on is the majority of our products really serve in a customer design and as such our piece part inventory in the ODMs also reflects another data point for us to triangulate in terms of what the ongoing manufacturing (inaudible), how they manifest itself in the forecast. And just later (inaudible). We have been using the same forecast process since 6 years ago when we go public, and we have not changed yet. It is the same process.

Okay, and another question I had was did you happen to see any component constraints during the December quarter that potentially limited revenue upside?

Not really, Jeff. I mean there has been some market chatters about [batteries] at one time, [LC] at another time. We don't see that as a significant issue one way or the other from our perspective.

Okay, and finally, I appreciate your time gentlemen. Are there any concerns and kind of tying back into visibility, what concerns do you have about potential order cancellations when you give us this guidance now for the June quarter a few quarters out and you said obviously there has been some potential macro economic impact. What concerns do you have right now about potential order cancellation rates?

Well, I mean first of all Jeff, look at the backlog that is coming in our quarter, right. Now typically we do roughly 40 to 60% of our business, of [turns] business at the end of the quarter. When you look at the order [rate] of about less than $36 million backlog which is a reasonable drop from December, and past experience has told us, now when people have put in that kind of a [bell], it reflects cautiousness on their part, right? So when I am talking about 40 to 60% of our business that comes in their quarters, basically we (inaudible) people are being very cautious. Why are they cautious? Because of a general economic situation. I think all of us in general are probably looking at the macro economic environment and consumer spending, I think those are the factors that go into the range, that the company has provided to you guys for the March quarter and also for the June quarter.

Okay, thank you very much gentlemen. I appreciate your time.

Thank you. Our next question comes from the line of Vijay Rakesh. Please go ahead sir.

Statement on the March quarter guidance. Are you seeing your notebook, are you seeing this caution more on the MP3 player side and so is your notebook guidance kind of down in line with seasonality and MP3 down a lot more? Is that the way to look at it?

Vijay, I'm sorry. Could you repeat the entire question. I think we didn't hear the first part of it.

Sure thing. Just going back to your initial statement on caution on the March quarter guidance on the part of your customers. Are you seeing that the notebook is more down to seasonality and the caution is more on the MP3 player side of the business based on your rolling forecasts that your are getting?

Well the backlog we have moving into the March quarter is predominantly weighted towards PC applications. So again when we look at the sequential decline that we are expecting in the March quarter, a major portion of that is going to come from reduced demand for portable digital music applications. If we look out into the June quarter, again we are expecting to see growth in each of the segments today that we generate revenue from as we move from the March to June quarter.

So basically what you are saying is that caution is on the part of the portable media player market?

No, I think there is caution across the customer base generally. We did see a 44% decline in our backlog entering the December quarter versus exiting the December quarter. So I think everybody today, concerns or talk about the economy generally seems to dominate the landscape these days and everybody I think is paying attention to it to make sure that they don't create any supply chain problems for themselves. And we will just have to wait to see how that develops.

And this visibility into the June quarter of up 11 to 19%, is that based on specific rolling forecasts that your are getting from your customers?

Yes, those rolling forecasts are part of the way we put together our outlook.

And last question, can you perhaps address the whole thing about that you guys have been losing share at HP to a competition or the whole market loss issue in the March to June quarters and how do you put that in a (inaudible). You still expect to grow online with the notebook kind of market growth for 2008?

Well in keeping with our past practice Vijay we don't intend to comment on share within specific accounts for obvious reasons. And as I said earlier, we don't have specific market share objectives recognizing the fact that we are in a constrained environment and by that what I mean is we have more opportunities available to us across our customer base that serve all the verticals today. We really have to make conscious decisions about where to employ those resources and we do it from a perspective and in a manner that we hope is going to generate growth, both revenue and profits, and create shareholder value. So every design win opportunity does not have the same potential to do that as others. And so we try to do it in a way that we are managing the growth objectives and profitability goals we set for the company again with the backdrop of knowing we can't address every opportunity that is out there.

Okay, great. Thanks.

Thank you. Our next question comes from Andrew Neff with Bear Stearns. Please go ahead.

Thank you. Four things if I could. One, could you just review what you expect the tax rate for 2009/2010 to be? Second, could you just update us on phone design activity and how many of those phones are currently in production and any color on that? Third, and this is related to what was said before, while you say that MP3, it sounds like notebook customers are saying the same thing, but from what you are saying the magnitude of the [cut] is more dramatic in the MP3, is that correct? And lastly, just to the last question. Does chatter about market share loss a factor in your reduced forecast?

I'm sorry Andrew, what was the last one?

The various trade chatter about market share loss that (inaudible), is that a factor in your reduced forecast?

Okay, regarding the tax rate, beyond the current fiscal year, so once we get to fiscal year 2009 and beyond we are expecting our tax rate to be in the low 20% range. And we believe that that will be a sustainable level for us based on our org structure at that point and the tax planning that was implemented 4 years ago that we now hope to see the full benefit of.

Regarding phone activity, we do have ongoing design activity in cell phones obviously, both for multimedia controls and for clear touch applications and so we are optimistic about the potential that market holds for us for revenue growth for the remainder of 2008.

Last quarter we probably had revenue from I'm going to say somewhere between 6 and 9 different phone designs, some of which are One Touch base, so we continue to see adoption of our One Touch solution. And as you recall that is wear we are selling a chip versus a total module that we've designed, manufactured and delivered.

Again, regarding the guidance MP3 versus notebook and caution from customers, we are seeing caution I think across the board generally. When I look a the backlog exiting the December quarter, again it is predominantly weighted towards PC applications so we are seeing, we really have very limited visibility for MP3 applications and as you know that is a market where there is a big disparity amongst the OEMs that participate there. And it is a market as we have indicated in the past that generally we have less visibility and it is less opportunistic for us. So we are really on a shorter times horizon there and we only have visibility based on what the customer chooses to share in those markets.

Notebooks, again there is caution, certainly on the part of notebook OEMs as well. And, but again the thing to focus on here is just the long term horizon and the opportunities that we see in front of us as a company. And we know that the short term environment or things that everybody has to deal with, but long term we are feeling very, very comfortable with our ability to take advantage of these longer term trends towards digital home, digital lifestyle, and these converged products that will enrich everybody's ability to access information any time, any where.

I guess Andy to complement Russ' point a little bit more, you always hear us talk about design activities. Let me just emphasize to you again design activities have been strong and they continue to be strong. The company is investing to increase our infrastructures as certainly as related to people resources as evidenced by the increase in headcount in December and also we continue to recruit pretty heavily in the company. And frankly it is because opportunities are ahead of us. And a significant amount of that opportunity really is in the cell phone areas that you talk about. So when Russ talk about you are going to see us to manifest itself in terms of incremental revenue coming into the company, you guys are going to see that the balance of the calendar year, Andy.

And then Andy to your last question regarding chatter in the market about market share shift, again I hope my earlier explanation of how we approach the markets will help address that. When we are providing guidance, every quarter when we transition as we have discussed previously, 15 to 25% of our revenue can be coming from products that weren't shipping in the prior quarter. So we have always got this design mix churn that is going on. And so market shifts as it relates and is foreseen in the forecast and the design win activity that we have and the expected launches for those products, yes, those kind of things get baked into the guidance that we provide again based on the data we have at the date we are providing that forward outlook.

Okay, thanks.

Thank you. Our next question comes from Rob Stone with Cowen & Co. Please go ahead.

Hi guys.

Hi Rob.

I think this horse might already be dead but I see a little twitch there so I am going to hit it one more time. With respect to the sequential uptick in the June quarter, is there the usual level of new product introductions or is one of the things that gives your customers ability to forecast up sequential despite economic anxiety is the fact that if you are going to launch a new product you have to build some of them and get them into channel?

Again, as in every quarter we are expecting the launch of new products in both the March and the June quarter. Again, based on the information available today, what we are trying to do is just provide you the best outlook we can based on the information that is available. And we hope that is helpful for you guys. But it does assume that there will be new product designs that will be launching in that out quarter.

A final question related to handsets. In past quarters, or a couple of quarters back you had some fairly specific details to mention about handsets. Nothing in the prepared remarks this time. Is that, although there seem to be an increased number of handsets that are shipping with your technology, are you precluded by those customers from mentioning a design that you are in or what is the reason for the reticence to --?

No Rob. There really is none of that. The policy hasn't changed. It really has to do with when new products are being launched typically we collaborate with the OEMs, we talked about that, and there is really no change in terms of policy and practice.

But we do have restriction with some customers. And as you know we typically don't talk about products in advance of them being announced by our customers, so stay tuned. As we said, we do expect that you will see additional activity and revenue from cell phone applications as we move into the remainder of this calendar year.

Yeah, I wasn't so much thinking of going forward as you mentioned 6 to 9 phones that were shipping for revenue in the December quarter. If memory serves that is up from a lower single digit number in the prior quarter. Is that right?

I think it is fairly similar, Rob. I think we had about the same level last quarter.

Alright, thanks.

Thank you.

Thank you. Our next question comes from Anthony Stoss with Craig-Hallum. Please go ahead.

Hi guys. Kind of a two part question. If you wouldn't mind commenting about kind of ASPs, any change to that or if there is any competition that is intensifying in your industry? Also last quarter you mentioned that your One Touch gross margins were above 45%, any change there? And also if you could comment on any new One Touch wins?

Again, ASPs generally are determined at the time you compete for the design win and it is based on the feature functionality that you are providing and the design constraints that they place on us when we are doing those designs. We have already seen a shift to lower priced notebooks and that has been something that has been reflected in our product mix for awhile. We have seen this adoption of the multimedia controls which has helped offset some of that lower price mix for TouchPads by adding additional revenue content to notebooks today. Every time we compete for a design it is a competitive environment. And certainly the customers need to use that as a leverage to get the best pricing that they can for the products that your provide for them. So everything we do is competitive.

With regards to One Touch, yes generally One Touch margins will be accretive to our blended gross margin range and there hasn't been any change there. And we do have additional One Touch designs that are shipping in the market place today and it is revenue that is growing for us, but still not meaningful enough to talk about. It's less than 5% of total revenue today but it is growing.

Okay, great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sumit Dhanda with Banc of America. Please go ahead.

Yes, thank you for taking my question. Russ, I have a question on your notebook business. How would you describe typical seasonality in that business, if there is a metric you could share with us in terms of typical sequential decline?

Usually for industry data we rely on IDC information. In the last, I think the December outlook that IDC had put out for sequential decline for notebooks from December to March quarter was in the range of about 10%. And we are expecting to see something that is relatively in line with that seasonality.

I guess my question is a follow up to that is just given the fact that PCs are of your business, your outlook seems to suggest, again you haven't given any details on this, but the decline by definition would be large within the notebook segment. Or am I missing something in the calculation? Or is it essentially that your non-PC business is going to next to nothing in March?

Well I am not sure what comment you are referring to that would lead you to believe that the notebook business by itself has seen a big decline. We are projecting a sequential decline December to March. It is generally a typically seasonally weaker quarter. And I think as a lot of companies have indicated, just the backdrop of the current economic uncertainty is potentially going to weaken what is already a seasonally weak quarter. And I think that is reflected in the backlog and the forecast that we are seeing from our customers today. But again as I mentioned earlier the biggest drop off for us sequentially is the significant reduction in what we expect demand will be for our solutions in portable digital music players.

So just not to beat a dead horse, but just a way to paraphrase then, seasonally down notebooks are seasonally down in March, based on what your customers had to say, it is something slightly worse. Just the other question I had in terms of the number of notebooks you touch on a worldwide basis approximation. Could you give us a number?

We believe that our market share in the notebook applications is north of 65%.

Thank you so much for your time.

Thank you.

Thank you. Our next question comes from the line of Fritz von Carp with Sage Asset Management. Please go ahead.

Yes, hi gentlemen, thanks for taking my question too. I just wanted to go back to the June quarter guidance and to follow on the other gentleman's question about how much of that is from sockets, socket wins. Could you give us some feel to what extent is your guidance built on what you know about specific new product ramp up and so forth, socket wins, and how much of it is based on your expectation of the market sort of straightening itself out and improving? Or maybe you could say what your sort of underlying market expectation is for June as opposed to your own expectation?

Okay, when we are providing guidance again we get rolling forecasts from our customers that will look out somewhere between 4 and 6 months. So we have those. We have that level of detail from them and that is at the design level. So that is looking at it from a very bottom's up perspective. Obviously our sales guys are in contact with the customers all the time and also engaged in trying to get additional information about what turns business is going to look like in a quarter. And then as Francis indicated there is the new designs that we expect to ramp during the out quarters based on the schedules that have been agreed to with the customers. And all of those are very bottoms up detailed looking view of what the future periods look like for us and then we look at industry analysts like IDC and Gartner to see what they're forecasting for the macro industries that we participate in. And then there is always the backdrop of just the general economic conditions worldwide. And we look at all of those data points and again put our best filter on that information in trying to provide you the outlook that we hope is helpful.

And Fritz, I think we have said it a number of times in the past, and Synaptics' revenue profile typically every quarter 15 to 25% of our revenue comes from new designs.

Okay, thank you.

Thank you. Our next question comes from the line of Adrian Dawes with Hartwell. Please go ahead.

Thank you. Can you talk a little bit about the new hires and what objectives and goals you are attempting to be able to deliver on particularly in terms of capability, addressing more of the market as you have commented earlier that you have to ration your resources and target them?

Okay, Adrian, Synaptics is a light asset virtual manufacturing company, so basically people that we have, mostly that we hire are really engineers and product development personnel. And in the last couple of years we have focused in deploying a significant amount of those resources outside the US. So for example we have been staffing up our (inaudible) design center for the last 12 to 18 months pretty aggressively. And those are mainly product development personnel.

In Russ' part of the prepared earlier remarks we kind of talked about the headcount growth, quarter to quarter. And if you look at the profile of our people, typically about I would say 60% to 65% of the personnel are basically engineers and certainly lately we have been employing also a lot of go-to-market personnel in the various regions as well. So the headcount growth is going to be worldwide with the outside of US faster than in US. And also (inaudible) to technical personnel in the areas of development engineers and pre-application engineers.

Great, thanks. Just back to earlier questions and your comments regarding the slackening of demand and the decline of backlog. Can you just again review, maybe summarize, the tone of the commentary you have had from some of your customers specifically this month as opposed to the tail end of last quarter. Maybe give us a little greater color in terms of what they are thinking?

Well, again, as we indicated in the earlier comments, one of the reasons for the reduction in our outlook for the current quarter from what we had anticipated three months ago is coming into the January quarter we did see a relatively steep decline in our backlog. And in the ensuing time between turning the calendar and now we have seen customers come in with lower forecasts. We've seen customers come in and push orders out. We haven't seen order cancellations but we have seen push outs. And so all of that just tells us that they are taking a pretty cautious approach given the uncertainties today in the economy.

Okay, thanks. Final question. As you look at the opportunity set in terms of addressable market, in terms of potential design wins. Is there some way once your productivity can step up and garner more market share to offset some of the slowdown.

We are focuses on productivities all the time and part of the thing that I (inaudible) Adrian about, moving resources close to the customers, regional (inaudible) of our business opportunities are actually outside the US. But the issues have to do with like customer satisfactions, servicing our customers at their time zone and so on and so forth. So we focus on the efficiency part as well as the customer satisfaction part all the time. I think I would say that the main reason that we are continuously to add on those headcount here is really we continue eye on the position like Russ earlier talked about have to make choices.

This is a company where the market is expanding quite fast in a number of directions just like in the comments you heard earlier. Now we are in a Logitech Harmony Remote Controllers. Now we are in a Sony Vaio all-in-one desktop PC. Last quarters we have also been talking about some of those products moving into some of the digital lifestyle segments. So we are continually short handed in terms of managing and matching opportunities versus resources internally. So expanding our ability to service that opportunity has been a very high level focus of our company and part of it goes into the area of moving resources closer to the customer and another part of it is really continuously deploying One Touch where by we get turnover. The innovation from Synaptics' experience in the customer's hands. So hopefully that gives you some color in the sense that we are leveraging productivities at the same time we are always trying to match up the opportunity versus resources we have in the company.

And we have expanded our applications year over year and I know that is probably getting lost a little bit here in the comments and questions that we are taking. But you have to remember that even in the current economic environment with I think everybody agrees has some uncertainty tied to it, the guidance that we have given for the March quarter, even though it is lower than what we thought it would look like 90 days ago, it still represents 18 to 27% growth year-over-year. And that doesn't happen unless we are expanding our customer base and expanding the applications within the customer base and our target markets.

Great. Thank you gentlemen.

Thank you. I show that there are no further questions in the queue at this time. I would like to turn the call back over to management for any closing statements.

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

Ladies and gentlemen, this concludes the Synaptics Second Quarter Fiscal 2008 Conference Call. You may now disconnect.