Synaptics Inc (SYNA) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, thank you for standing by. Welcome to the Synaptics fourth quarter and fiscal year 2010 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Thursday, July 29th, 2010, I would now like to turn the conference over to Alex Wellins of The Blueshirt Group. Please go ahead.

Good afternoon, and thanks for joining us today on Synaptics's fourth quarter and fiscal year 2010 conference call. This call is also being broadcast live over the web, and can be accessed on the Investor Relations section of the Company's website at synaptics.com. With me on today's call are Tom Tiernan, the Company's President and CEO, and Kathy Bayless, Synaptics's CFO.

In addition to the Company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes non-GAAP share-based compensation charges, and certain other non-operational and non-cash items. Please refer to the press release issued after the market closed today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally 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, including but not limited to statements regarding the Company's future financial performance and outlook including financial guidance for the first quarter and full-year fiscal 2011, current views regarding trends in the Company's markets, including their size and potential for growth, market share assumptions, the Company's competitive positioning in its markets, trends in unit costs and selling prices, design activity, design wins, market demand for the Company's products and solutions, changes in product mix and general economic conditions.

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 30, 2009, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. We expressly disclaim any obligation to update this forward-looking information.

With that said, I will turn the call over to Tom Tiernan. Tom?

Thanks, Alex. And I would like to welcome everyone to today's call. Synaptics capped off fiscal 2010 with the highest revenue quarter in our Company's history. Record revenues of $146 million for the fourth quarter were at the high end of our guidance range, and grew 26% over the prior year, and 25% over the preceding quarter. GAAP net income was also a record, growing 56% to $19 million, or $0.54 per diluted share, from $12 million, or $0.34 per diluted share in the year-ago period. We experienced strong sequential growth from both notebook and mobile applications, and achieved our best quarter ever for Mobile touchscreen revenue.

Our fiscal 2010 revenues grew 9% from the prior year to $515 million. The year unfolded as anticipated with a relatively flat performance in the first six months, followed by a strong second half, with 21% year-over-year growth. We ended the year with a strong debt-free balance sheet, and more than $200 million in cash. As the innovation leader in human interface solutions, Synaptics continues to win in the market, based on our innovative solutions approach, our portfolio fulfillment model, the strength and reliability of our technology, and our proven ability to execute.

Our design pipeline continues to expand. We are investing to meet the demand ahead in order to capitalize on the extension of our technology, and to a broad range of consumer products. Fiscal 2011 is off to a strong start, and we anticipate setting a new revenue record in the first quarter, including another record revenue from Mobile touchscreens.

I will ask Kathy to review our financial results with you in detail, and then I will provide you with a closer look at our design wins, recent product innovations, and key growth drivers in our markets before taking your questions. Kathy?

Thanks, Tom. As Tom mentioned, fiscal Q4 marked a record quarter of revenue for the Company. Revenue of $146 million for the June quarter, increased 25% on a sequential basis, and 26% year-over-year. Revenue from PC applications grew 29% over the prior year, and 16% over the March quarter, reflecting continued strong demand for our notebook-based products. Within the non-PC category, revenue from Mobile applications reached our highest level to date, reflecting strong demand for Synaptics's touchscreen mobile phones.

Specifically Mobile revenue grew 29% year-over-year, and 40% over the preceding quarter. We are particularly proud of this result, as revenue from portable digital entertainment devices continued to be immaterial during the quarter. Our overall revenue mix for PC and non-PC applications was approximately 58% and 42% respectively,with revenue from Mobile applications comprising 40%. For fiscal 2010, total revenue grew 9% to $515 million, with 59% from PC applications, and 41% from non-PC applications. Revenue from Mobile phone applications comprised 34% of the total. Revenue from PC applications increased 13% compared to last year.

Strong double-digit growth in TouchPad-based applications was partially offset as expected by a significant decline in the attach rate for multimedia controls. Revenue from non-PC applications increased 3% over the prior year, as we began to transition to our portfolio fulfillment model for Mobile touchscreen applications, and as revenue from portable digital entertainment devices declined 15% from the prior year. As Tom mentioned earlier, after a relatively flat first half, revenue grew solidly at 21% in the second half of the year. In fact, revenue in our core markets increased 36% for PC, and 15% for mobile phones respectively in the second half, compared to the prior year. While portable digital entertainment devices declined 70% in the period.

On a non-GAAP gross margin basis in the June quarter and fiscal year, our gross margin was 41%, up slightly from the prior year, reflecting our overall product mix. GAAP operating expenses were $38 million, compared to $35.8 million in the preceding quarter, and included non-cash share-based compensation charges of $7.5 million and $7.6 million respectively.

Our non-GAAP operating expenses excluding share-based compensation increased 8% from the prior quarter to $30.4 million in line with our expectations. For fiscal 2010, non-GAAP operating expenses increased 14% to $113.5 million,primarily reflecting our 12% increase in headcount to support our continuing business growth.

Our headcount at the end of June was 586, up 6% from the prior quarter. Our non-GAAP tax rate was 16.1% in the June quarter, compared to 18.1% in the March quarter, and 18.5% for the fiscal year. Our GAAP tax rates were 10% and 0.4% respectively in the June and March quarters. Our GAAP tax rate for the March quarter reflected a one-time benefit of $1.8 million from the carryback of a net-operating loss. Non-GAAP net income was $24.8 million, or $0.70 per diluted share, up 44% and 49% respectively, compared with $17.2 million, or $0.47 per diluted share in the June quarter a year ago.

For fiscal 2010, non-GAAP net income was $80 million, or $2.26 per diluted share, as compared to $77.9 million, or $2.19 per diluted share in the prior year.

Turning to our balance sheet, we ended the year with $210 million of cash, an increase of $41 million in the June quarter. Cash from operations for the year approximated $114 million. In fiscal 2010, we repaid $63 million of debt and are virtually debt free, and we also used $45 million to repurchase 5% of our common stock. Employee participation in our equity plans contributed $5 million for the quarter, and $12 million for the year. Capital expenditures were $2.8 million for the quarter, and $9.1 million for the year. Depreciation was $2.4 million for the quarter, and $8.7 million for the year.

Receivables at the end of June were $101.5 million, compared to $88 million at the end of March. Days Sales Outstanding of 63 days improved from 68 days in the prior quarter, reflecting the timing of sales throughout the quarter. Inventories at the end of June were $18.7 million, compared to $18.2 million at the end of March. With inventory turns at 19, compared with 15 in the prior quarter.

Looking ahead to the September quarter, based on our backlog of approximately $85 million entering the quarter, our expected product mix and customer forecasts, we anticipate revenue will be in the range of $148 million to $156 million, an increase of 24% to 30% compared to last year. Our outlook reflects another record-revenue quarter, and continued strong demand for our notebook and mobile applications, with record revenue expected from mobile touchscreens. Similar to last quarter, this growth assumes limited contribution from portable digital entertainment applications which accounted for 8% of our revenue mix a year ago.

Using our current backlog as a proxy, we expect non-GAAP gross margin for the September quarter to be relatively flat to slightly down from the previous quarter. We anticipate increased operating expenses this quarter, based on our staffing plans, as we continue to invest in our engineering and go-to-market capabilities to meet the opportunities we see ahead. We expect the FAS 124R charge to be in the range of $7.5 millionto $8 million. We anticipate that our non-GAAP tax rate for the September quarter and fiscal year will be in the range of 19% to 21%. Non-GAAP net income per diluted share for the September quarter is expected to be in the range of $0.59 to $0.67 per share.

Now I will turn the call back over Tom for an update on our business.

Thanks, Kathy. I will pick up with a review of our key markets, starting with PCs. We expanded our leadership position in fiscal 2010, delivering high-performance TouchPad and ClickPad solutions to our notebook OEM customers. I am pleased to report that we successfully cracked the 65% to 70% market share range we have held over the last several quarters, and believe we are now north of 70% market share.

OEM customers continue to differentiate their product's usability and industrial designs by taking advantage of our innovative features and products. This includes shipments of multi-finger, gesture-enabled TouchPads, which increased from 68% of our unit mix in the March quarter to 84% in the June quarter. Additionally shipments of our ClickPad solution now represent 10% of our unit mix. As we enter the new fiscal year, we see continued strong design-in activity for both offerings, and expect further market uptake. As the notebook market leader, we continue to develop new products with leading OEMs many of whom are now including our latest Synaptics Gesture Suite. A sampling of new notebooks shipping with this functionality includes the Acer Timeline X, and Aspire One, another Asus EPC model, and multiple Dell Inspiron models. Our advanced solutions are also incorporated in several HP ProBook models, two Lenovo ThinkPads, the Samsung N315, the Sony VAIO Z, and the Toshiba Protege R700.

As mentioned previously, we are also seeing increased demand for our ClickPad, which is now shipping in the HP Pavilion consumer notebook line. The commercial notebook space also continues to show signs of recovery,as we experienced another quarter of year-over-year growth. We are on track to release a production verse of our Scrybe, gesture-based, workflow offerings to OEMs. We expect to see major OEM models with Scrybe installed in the retail channel by the holiday-selling season.

Scrybe is a value-added feature at the driver level, which further differentiates Synaptics and strengthens our leadership position. We envision Scrybe to bolster not only our tradition TouchPad offering, but also our large touchscreen offering in the developing slate category, where the absence of a physical keyboard encourages gesture-based usage models. In fact, we just announced our ClearPad 7200 series, targeted for large touchscreens up to 10.1 inches, utilizing just two Synaptics Asics. This offering is ideal for OEMs designing a wide range of products that require multi-finger touch capability, including Clamshell notebooks, slates, tablets, and other devices like digital photo frames and electronic readers. We expect to generate revenue from OEM products featuring our ClearPad series 7200 technology in the current fiscal year.

As mentioned earlier, we delivered our highest ever mobile revenue quarter. I am pleased to mention that we hit a new high for mobile designs in production during the quarter, with over 30 production phone models shipping with Synaptics ClearPad touchscreens. Our mobile business continues to reflect a mix of modules, tails, and chips. Pricing for modules continues to come down, as expected reflecting our ongoing cost-reduction efforts. We continue to effectively manage the supply chain with lead times within our typical four to six-week range for all products.

Last quarter, we announced that our most advanced multi-touch ClearPad 3000 series touchscreen began shipping into both LGs, LU 2300 Smartphones, and innovative Arena Max phone. LG has deployed additional designs on this platform, including the Optimist Q and Optimist Z Android-based smartphones. New designs utilizing our ClearPad 2000 solutions include the HTC MyTouch 3G slide for T-Mobile, the highly anticipated HTC Aria for AT&T, the Vodafone 845 in Europe, the Huawei C8600 for China Telecom, the ZTE Android-based Blade now shipping for Orange and SoftBank, the Sharp SH07B for NTT Docomo in Japan, and the Garmin Asus Nuvi phone A10 selling in Europe and Asia.

Relative to new markets, Synaptics is also working with remote control manufacturers, including Philips Home Control, on implementing an optimized hardware level specification for TouchPad technology, that provides easy integration into remote control devices that improve the interaction between users and content. As we have discussed, our June quarter revenue was an all-time record for the Company, ending our fiscal year on a high note. In fiscal 2010, we have reinforced our leadership position in the notebook market, expanded our penetration in the mobile phone market, transitioned to a portfolio fulfillment model, introduced exciting new technologies and enhancements across our solutions set, and began to pioneer the next generation of TouchPads and touchscreens with new usage models, such as Scrybe and our advanced mobile concept phone Fuse.

With strong momentum exiting fiscal 2010, and considering the first quarter guidance that Kathy provided, we expect a strong start to the new fiscal year. We continue to monitor the current macroeconomic environment, which clearly impacts visibility, but we want to provide you with the best view that we can, based on the indicators we have at this time. As you know, the dynamics in our markets can shift quickly, and we are keeping a sharp eye on order patterns, and customer forecasts, relative to consumer demand.

As I outlined last quarter, here is how we currently view our markets. First, given our leadership position in notebooks, we should continue to generally track that market's growth subject to some variability based on timing of sell-in to the supply chain. Current unit forecasts suggests notebook unit growth rates in the upper teens. Near-term product trends including growth of ClickPads and commercial notebooks, could lead to a stable to slightly favorable pricing trend.

Second, in the mobile category, we expect our units to grow with the market as capacitive touchscreen phones penetrate beyond the 10% level they represent today. We expect mobile revenue will grow at a faster rate than last year, as we continue to increase the number of designs in production. We do expect to see continued quarterly variability in our mobile revenue. This reflects our portfolio product mix of modules, tails and chips, our efforts to lower module ASPs in concert with our cost-reduction initiatives, and actual end demand for specific phones shipping in the market. As such, unit growth and revenue may not correlate in any particular quarter.

Finally, we expect revenue from the portable digital entertainment market to be lower than historical levels, while revenue from new applications and markets will remain opportunistic. While we are not providing a specific annual guidance range, our outlook calls for accelerated revenue growth in fiscal 2011 as compared to the prior fiscal year. Combined with our market commentary, this implies a growth rate of at least the low double digits to mid-teens. And we anticipate returning to our historical compounded annual growth rate in the 20% range over time.

As a peer plan human interface design, our core competency and expertise in increasing the interaction between people and intelligent devices is unparalleled. Our solutions approach continues to be a winning strategy in the market, and we offer the highest level of fulfillment flexibility, service, and execution. We have a remarkable track record having enabled more than 800 million devices to date with Synaptics solutions. Our current markets are experiencing solid growth, and we see multiple opportunities to drive further innovation into both our core and adjacent markets.

We will invest in the engineering talent and resources necessary to scale our business, target new markets and applications, and drive innovation at the usage-model level. These efforts will allow us to continue to provide value to our customers while keeping Synaptics at the forefront of human-interface solutions. I would like to conclude by thanking our employees, customers, suppliers, and investors for their steadfast support over the past year. We look forward to updating you on our progress during the coming year.

With that, let's turn the call over to the operator and start the Q&A session. Operator?

Thank you, sir. (Operator Instructions). Our first question is from the line of Charlie Anderson. Please go ahead.

Good afternoon, and congratulations on the quarter.

Thanks, Charlie.

Wondered if you guys could talk a little bit about the tablet assumptions?Tom you mentioned you guys expect revenue? How big can this category be? What kind of market share can you think about? Obviously you have a few proxies there both on Mobile and then PC. If you could just walk us through where you see tablets shaking out?And then I have another follow-up.

Sure, Charlie, different from some years ago when Microsoft came up with the tablet OS, and it didn't go very far, we do think this time the ecosystem is falling into place to make this category a big category. How we view the form factor part of the market, I mean I think personally it is going to be a mix of Clamshell form factors, tablets, and slates. I think the slate orientation like you see in the Apple iPad is going to be likely the mainstream orientation in the market, but the Synaptics technology addresses all of those form factors independent of how they morph over time.

So we have said for a number of quarters now that we think we will start seeing products in this category in retail for the holiday season. We think volumes for this product will take off next year, next calendar year, and in terms of our positioning in the market, we expect to be a leader in that market as we are in the smaller touchscreen, capacitive touchscreen market and handsets. We will start seeing some revenue within the calendar half, the later half of calendar 2010, and we would be ramping that through the course of the second half of our fiscal year.

And then Tom if you could speak to the guidance just for a second, when I look at your Q1 guidance versus your annual guidance, it does assume a bit of a slowdown in the back half, and then you mentioned getting back to that 20%, if you could just walk us through going through that valley and then going back up to the 20%, kind of how you will get there? Thanks.

Yes, great question, Charlie, and we have talk for a long time with a lot of you folks about how tough it is to forecast four quarters out in the handset market. As you know it is a very, very dynamic market, and so bottom line we have chosen to be prudent in our guidance in handsets, particularly given the business model that we have, and being able to ship and fulfill whatever our customers desire. And so we are giving you the best view that we have today. My own orientation overall here, if you just take a step back is that with what we see in our funnel and design portfolio, and such, and handicapping it the best we can, I would generally expect mobile revenue to grow a bit less than the comparable notebook revenue numbers that we are modeling, and then also, don't forget that in the context of our fiscal 2011, compared to fiscal 2010, we did comment that our PDE, or personal digital entertainment revenue associated with the markets there, is expected to be quite a bit less than it was in 2010.

Great. Thanks so much.

Sure thing.

The next question from the line of Shaw Wu. Please go ahead.

Hi. Thank you. Sorry, I got on the call late. Sorry just having technical difficulties here, but just any comment on the tablet revenue? I apologize if you have covered this already, in terms of that occurring, in terms of some color there? Thanks.

Sure, yes, thanks, Shaw. Yes, I actually just addressed that in the previous question, but we do see this market developing in a substantial way over the next year. For our own revenue stream, we expect revenue in the context of our fiscal year 2011 starting at the tail end of this calendar year, and then building and growing through the second fiscal half of our fiscal 2011, and of course beyond.

Okay. Yes. Thanks. I apologize that you just answered that.

No. No.

Now in terms of any comment on the margin profile, ASPs, and I guess the first question. And then the second is, any thoughts on potential I guess cannibalization of net books? Any thoughts there? Thanks.

Sure overall on margins, if you look at our numbers, we have done a great job at managing our margins at a pretty healthy level over the last many, many quarters. For the Company, we are sticking with our target model of 40% to 45%. We are not change that. As you know the last couple of years, we have been hovering at the lower end of that range, 40% to 42-ish%.

And when we double click on the different categories, we do have some favorable trends that we hope continue for notebooks. That is, it does seem that the commercial side of the notebook business is coming back. We experienced our second quarter in a row of relative annual growth there, and those tend to be favorable to our margin profile, and ClickPad as well is a highly innovative product that we think we are the only ones that can do well in the market.

On the handset side of the business, it is a portfolio, it is a mix, and we are managing it to that same blended average that I mentioned earlier, and at this stage we have no reason to believe it is going to go one way or another, and expect to exit the year in pretty much the same way we entered it.

Specific, Shaw, to your question on netbooks, it is anybody's guess how that is going to play out vis-a-vis the speculation out there on iPads. What we can see is that from an overall mix point of view in the notebook category, inclusive of netbooks, that it seems that the growth rate on netbooks has come down quite a bit from what it had been over the past year, and from what we can see, it looks like some of the lower-priced normal form factors, notebooks are picking up the slack that netbooks has experienced over the last couple of quarters.

Okay. Thanks for the color and great quarter.

Thank you.

Your next question is from the line of Yair Reiner. Please go ahead.

Great. Thank you. Congratulations and good quarter. So first question on the guidance for next quarter, if I am doing my math right, I think it implies OpEx growing sequentially more than 10%. First of all, am I doing the math right? And secondly, maybe you can give us some indications of what that is going towards in terms of specific types of projects that you are working on?

Hi, Yair. I will try to provide some more color from an OpEx standpoint as we talked have about before, our headcount is the primary driver of our operating expense. And if you look at the fourth quarter, we have increased our hiring rate, and we expect to continue to do that in fiscal 2011. The main areas that we are looking at from a hiring standpoint are our platform engineering teams, as well as increasing staff at our local design centers around the world that sit right next to our customers, so we can support the continuing increase in the design activity, and from a percentage standpoint, when I look at Q1, and Q4 operating expense increased about 8%, and when I look at Q1, I am looking for something similar to that increase again. And I think overall what we are doing is we are continuing to look at managing operating expense within our target model, which has traditionally been kind of the 20% to 24% range.

Yes, Yair, the only thing I might add to that, in the fiscal fourth quarter, the quarter just closed, you may recall that in Q3 we did not achieve plan in our headcount expansion. We call it flat Q2 to Q3. We caught up a lot within the context of fiscal fourth quarter, which is why we had a pop in OpEx there. Our design center beyond the platform engineering technology development work that we are doing for touchscreens and other net new applications for the Company, our design centers around the world are still bursting at the seams. We are at a very high loading, if you will, around the world. So we are continuing to scale that up to meet the demand that is out there.

Great. Thank you, that is very helpful. And another question on the tablet market. What do you see the fulfillment kind of model being for that market given that for those type of modules, the sensor obviously is a huge part of the bill of materials, do you think there is an opportunity for mass-market devices, free to sell complete modules, or do you think that is going to be more of a tail and chip market for you?

That is a great question, Yair. And the way I look at it is first of all, it will be a portfolio play for us of modules tails and chips. That said, I would model it in the way, in the same way that you are modelling the small touchscreen market for us. I think it is definitely going to be a portfolio, we'll definitely exercise the flexibility that we have built up there in the other touchscreen side of our business. And that is what we anticipate.

Great.

Yair the only thing I would add to that is whatever we are because it is a large touchscreen when you compare it to the smaller touchscreens, the ASPs will be higher.

Understood, one final one if I would. DSOs were a bit lower than usual in the quarter. Should that be telling us anything about linearity? And then kind of what have been the trend starting here in the calendar third quarter in terms of what you are seeing from the PC supply chain? Thank you.

Okay. Let me take that question. From a Days Sales Outstanding, 63 days, that is a little bit lower than normal. What we saw during the quarter was that the June quarter was a little more linear, so really the DSO was primarily a function of better linearity in the quarter. And today what we are looking at we had a strong backlog entering the September quarter, and we are still seeing strong bookings momentum as of today.

Thank you.

Your next question is from the line of Steven Fox. Please go ahead.

Hi, good afternoon. Tom, can you go back and talk a little bit more about the quarter-to-quarter variability on the mobile side? I understand how that might be tough to predict the differences with mix and demand and ASPs, but as you smooth it out across the course of the year, can you talk about what the difference could be between unit growth and revenue growth on mobile and the different impacts?

Yes, great question, Steve, so first of all you know from our past dialogues that as a strategy for the Company, for Synaptics, we think the strength, one of the key strengths beyond our product technology and innovation and features, is the strength of a portfolio fulfillment models. In other words we can do business in the way our customers want to do business. And we believe we are the only ones on the market who have the assets to do that.

Now in the context of driving this business, our fundamental approach there is to continually increase the number of SKUs, or the number of unique models or products that we have quarter-to-quarter-to-quarter, year-to-year-to-year, so we that we can build up from a relatively low SKU base numbers a couple of years ago, to now we have doubled essentially from 2009 to 2010, we exited with more than 30, and we expect that kind of trend to continue as the market adopts more capacitive touchscreen technology, and so fundamentally, we are building a portfolio of SKUs like we what we have presently in our TouchPad business, which is well north of 100 production-worthy SKUs in any given quarter.

In terms of the variability, obviously as we continue to increase the number of SKUs we will be more able to deal with variability, whether that is just a function of the SKUs that we are selling that are successful versus not successful in the market. It is really hard to predict that one, particularly up front in the early design cycles, and the success of any particular model, or relative failure of any particular model, based on what we are transacting. If we are transacting a chip all the way to a module can still create that variability. We have characterized it as lumpiness before in our model, and we still think that we are going to have some of that lumpiness this year, and our strategy again is just to continue to increase the numbers so that we are less susceptible it to over time.

Okay. That is helpful. And just as a follow-up real quickly, when you talk about the tablet market, and potentially having revenues later on in this calendar year, is that contemplated in the full year guidance fully or is that still hard to predict? I mean, I am just trying to get a sense for how comfortable you are with some of those opportunities there, relative to what you just said on guidance?

Yes, that is a great question. We are being a bit prudent on these net new markets, and I did say that we do think this market is going to develop this time around, is going to be substantial over time. We do think that key parts of the ecosystem are falling into place, including at the application level, which is wonderful. That said, we are still being prudent in our guidance for this to see how this market plays out. Right now there is one successful product in the market it is called Apple's iPad. We will see about how the other ones do.

Fair enough. I appreciate those comments. Thanks.

Next question is from the line of Darice Liu, please go ahead.

Good afternoon, guys. Can you talk a little bit more about the Mobile market and the design activity occurring outside of Smartphones, i.e., feature phones?

Yes, great question, Darice. So first of all when we look at penetration of capacitive touchscreens and handsets, right now we think it is around 10% of the entire category, and we think that is going to continue to grow substantially over the coming years. And it is unquestionable from my mind that in working with all of the major OEMs that all of these guys have plans to deploy the technology over time into a broader part of their own product lineup. Almost all of them started with the Smartphone space, and many of them now are moving the technology as costs and prices, and what have you, come into line, into their higher-end feature phones, and I anticipate over time to the mid-range of their lineup. So we definitely see indications of that happening.

On top of that, once you get outside of touchscreens, and then start looking at really low-end handsets, $30, $40, $50 handsets that frankly make up the other 800 million units in the market, I personally don't think that you are going to see a lot of adoption of touchscreens there, but I do think you will see adoption of what we call flexpad, which is and an under the keyboard plastic-based TouchPad, where you get all of the functionality that you would have from a touchscreen, or from a TouchPad on a notebook computer, but at a much lower cost point, on that is more economically viable on those low end handsets.

Okay. So just two quick follow-ups to that. One, are you modeling any feature phones in your revenue forecast for 2011? And secondly, as customers do move, do start adopting touchscreens within the feature phones, are you going to see a shift in purchasing patternings, meaning they are going to go more for chips versus modules and tails just because of the cost structure?

So yes, and no. So yes, we are modeling greater penetration and across feature phones not just Smartphones, so absolutely yes. And two is the deployment of the technology into feature phones going to auger one way or another for the mix? We haven't seen any signs of that yet. When we look at our design-win profile and our funnel, it is still all over the map, and so far there is not a real discernible pattern.

Your next question is from the line of Blayne Curtis, please go ahead.

Hey, guys, a couple of questions. Tom, first on the full-year guidance, you talked about the PC market kind of tracking with end-market growth the MP3 business, let's just say it stays kind of this baseline level, it is kind of maybe a $20 million headwind, that means your Mobile business is growing at maybe is in the 20% to 25% range, and the market is growing something closer to 100. One, if you could give a little clarity to the assumptions you used to build up? We will start there.

Sure thing, Blayne. Yes. Let me go through those in the order you brought them up. Yes in PC market we expect to generally track whatever the units are doing in the market, and we do have some favorable dynamics going on there in terms of our mix, assuming commercial continues to grow, and ClickPad adoption, so that is good. And what we call the PDE, personal digital entertainment market, which yes, is mainly concentrated in the MP3 space, is going to be down fairly substantially year-on-year, and so just take that into account.

In the context of mobile, we do concur that over the coming year, that roughly number of units will double give or take some. And yes, we are being highly prudent in our assumptions relative to the third and fourth quarter out, just given the nature of the market, and the difficulty that many companies we think, not just us, have in predicting how that market is going to play out at the SKU level, or at the individual model level.

Got you, so given the record revenue that you are forecasting for September, is it fair so say that is your high point, and you expect the next three quarters to be down from those levels?

I wouldn't assume that.

Well, to get to that, for the full year, to get to those levels, that is kind of how the math works out.

Again, I wouldn't assume that.

Well, maybe we can just work on what I am missing there?I mean to get to, if the PC business is growing in the teens, you have a $20 million headwind for the digital media or the MP3, or whatever you want to call it, your Mobile business, your handset business is somewhere north of 60 starting at the beginning of the year, how do I get that math to work?

Again, Blayne, it is tough to forecast four quarters out in the handset business, and we are being as prudent as we can in the guidance we are giving you. Next question.

(Operator Instructions). The next question is from the line of Daniel Amir, please go ahead.

Yes, thanks a lot. Congratulations on a good quarter. A couple of things. First of all, Kathy, can you give us now, I mean assuming that we have the higher OpEx here for Q3, I mean, is this the new level that we should kind of grow off of that for the rest of the fiscal year in terms of OpEx?

Hey, Daniel. Yes, looking at the OpEx as I mentioned before we are looking at continuing to hire to support the growth of the business, and so looking at Q1, I would say the growth as a percentage would be up similar to what it was up in Q4, and overall, looking at the rest of the year out few more quarters, we are continuing to manage total OpEx within that 20% to 24% range as we normally have.

Okay. Great. Thanks. And the other question is regarding Q3, what is kind of the current thought in the PC space, and are we seeing more strength in the mobile handset side for the Q3 guidance, or it is really the notebook? And if it is the notebook, do you think it is really more the ClickPad share gains, or your share gains in general that is really helping you, or it is the commercial side?

When you say Q3, do you mean our fiscal Q1? now calendar Q3 (Overlapping Speakers)

Yes, Q1, sorry.

Yes, so if you look at the two core markets we expect both to be up from June quarter to September quarter, and if you look at them comparatively, we expect Mobile to be up more than notebooks. To your question on notebooks, we think our share levels that we have talked about, we will bounce around in the range we have been giving you. We are not expecting any losses of share in the current quarter, and there is a lot of noise in the media and the market now about how strong or weak the second half of the calendar year is going to be, versus the first half. We are monitoring that closely, and all we can say is so far the bookings momentum has been reasonable. So we will see how it plays out.

The next question from the line of Nilay Mehta. Please go ahead.

Hey, guys, this is Nilay calling in for Kevin. Got a couple of questions. The first one is within your portfolio chips, tails, et cetera, was there any change in your just reported quarter? And do you guys see that changing kind of going forward?

No, not really, and I would say that both in the unit shipments across those three fulfillment models in the fourth quarter, as well as in the design wins that we have booked over the past quarter. So obviously, when we look at those design wins we take the forecasts that our customers give us, and look at how they compare across those portfolio models, how that actually plays out in the real world in the market is anybody's guess when these things ramp, which is just tying it back to the commentary we had before on the guidance, particularly as it relates to the second fiscal half of the year is just it is hard to predict. So we are being prudent there.

The next is from the line of Rob Cihra, please go ahead.

Hi, thanks very much. Tom just double-checking one thing. I think you said just a couple of seconds ago you were looking for mobile phone revenue to be up more than notebook revenue sequentially in the September quarter versus the June quarter?

From a comparative growth rate, yes.

Quarter-to-quarter you mean?

Q-on-Q correct.

Okay.

And I also said for the year, if we just look at the total year fiscal year 2011, where of course we have much better visibility in notebooks than we do in touchscreens, just by the nature of the market, if I had to net it all out now, I would say that the relative growth rate of handsets or touchscreens primarily would be a bit less than the growth rate than we see today for notebooks.

Okay. Hopefully that wasn't my question. That was a clarification. My actual question, I guess, if you look at you did mention that as others have that corporate PC, you have seen improving, does that I guess two things. One, does that help you on a mix standpoint? Does duel pointing mix come into play any more, or is that even much of a helper on a sort of a blended ASP standpoint? And then within consumer notebook, outside of just looking at netbook, but even just with consumer notebook, do you feel like you have seen, or are hearing from your ODMs of concerns there? Moderation? Europe? You name it? That sort of thing? Thanks.

Yes, on the consumer mix, yes, it is still meaningful to the Company. Although if you take it in the context of the last couple of years, consumer has grown a lot faster than commercial, so it represents a much larger part of the total market than does commercial, but yes, the commercial revenue we do, or the commercial product we do, because it is a dual solution, the ASPs are generally higher for our Company compared to a TouchPad-only consumer model. So to the degree that commercial makes up a larger part of our PC notebook business, that is favorable for the Company.

In terms of what we are hearing from the OEMs and ODMs, I think in general, people are being a bit cautious because of some of the factors you had mentioned. How that plays out over the next six months, say up through the holiday season, we will see. All I can say is that the guidance that we have given factors in the forecasts that we do have, and particularly in the context of Q1, fiscal Q1 factors in addition the bookings, the load that we had going into the year, and the bookings up until this point in the quarter.

Next question from the line of Reggy Gill. Please go ahead.

Yes, thank you, and congratulations on good results. If you could perhaps characterize the competitive landscape this quarter in terms of design wins? And then kind of longer term, when you look at this market and the robust growth that it is looking to do, do you see other competitors moving into the market outside of the ones that you are currently competing with, Cypress and Atmel for example Broadcom or Texas Instruments, or a slab or microchip, so I guess the question is how defendable is this market if the unit growth rates really get to the levels that we are all thinking about?

Yes, Raj, so let's just take both markets individually, because they are quite unique in terms of the competitive dynamics.

I am only referring to the mobile handset, I apologize, just the mobile handset.

That is fine. So on mobile relative to the quarter just closed up to the present, no change in the cast of characters that we compete with, as we have characterized before, there are two other guys in the market that we generally go head-to-head with all of the time. I do not see that changing in the near term. We do, obviously, for these markets growing as fast as they are, we always see smaller guys trying to make a play. It is possible larger guys could make a play. Who knows over time. But what we do look at when we look at ourselves is, are we making the investments in engineering and innovation to differentiate ourselves from the competition? Are we making those investments across an entire solution stack that comprehends the mixed signal ASICs, drivers, a high-degree of algorithmic smarts, host code, all of that kind of stuff, material science? And we feel that our share in the IP that we have built as a Company, and know-how in this space is highly defensible.

Will you start exerting your IP in the mobile handset market as you have done in the past in the notebook market?

We have asserted it in the past multiple times successfully in notebooks, and I can't comment on what our plans may be in handsets.

And we do have time for just one last question, and that comes from the line of Ian Ing. Please go ahead.

Thanks for fitting me in. Large touchscreen solutions, you support up to 10 inches screen size, I know that includes netbooks but not notebooks, so should we expect future products with higher sizes, are there upper limits? Al also for the ASPs, I know you don't give those out, but does it just basically scale with the ASICs, and the sensors, and the screen sizes, et cetera?

Ian, yes, you are right on both counts, so the 7200 series product we just announced, it is our one and two-chip solution that goes to a little bit north of 10 inches. That is the first of a series of products that will scale up to ultimately we think four chips, and go over 17 inches, so the one we are just announcing goes to 10+ inches, and later announcements will cover the larger screen sizes. In terms of ASPs, yes, it does scale with screen size, particularly if and when we are fulfilling modules, and when we are fulfilling chips and tails, it scales with number of chips.

And ladies and gentlemen, that is all of the time we have for the question-and-answer session. I now turn it back to management for any closing remarks.

Well, thank you for being on the call with us today. We look forward to seeing you on the road, and updating you again on or next quarterly earnings call. Thank you.

Ladies and gentlemen, this concludes our conference for today. You may now disconnect. Thank you for your participation.