Synaptics Inc (SYNA) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Synaptics third-quarter fiscal 2011 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Ms. Jennifer Jarman of the Blueshirt group. Please go ahead, ma'am.

Thank you. Good afternoon, and thank you for joining us today on Synaptics' third-quarter fiscal 2011 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 website at www.synaptics.com. With me on today's call are Russ Knittel, Interim President and CEO and Kathy Bayless, CFO.

In addition to the Company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes non-cash share-based compensation charges and certain other non-operational and non-cash items. Please refer to the press release issued after market close today for a detailed reconciliation 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 performance and outlook, including financial guidance for the fourth quarter of fiscal 2011, expected increases in gross margin percentages and operating leverage related to its product mix shift, anticipated revenue growth for fiscal 2011 and fiscal 2012, the Company's belief that the tablet categorically will represent a meaningful revenue opportunity as the market continues to develop, the Company's design activity, design wins, OEM interest in new product offerings and technologies, and its ability to capitalize on the available opportunities.

Actual results may differ materially from any future performance suggested in the Company's forward-looking statements. We refer you the Company's SEC filings, including form 10-K for the fiscal year June 30 2010, for important 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. I will now turn the call over to Kathy Bayless. Kathy?

Thanks, Jennifer. Thanks, everyone for joining us on the call today. I'm going to start off with a review of our fiscal third quarter results and near-term outlook. Then I'll turn the call over to Russ, who will provide an update on our business.

Revenue for our third fiscal quarter was $142 million, an increase of 23% year-over-year, setting a new record high for the March quarter. Net income grew 16% year-over-year to $13.5 million, or $0.38 per share. In addition, we delivered record results for the first nine months of the fiscal year.

Revenue was $455 million, up 23%, and net income was $50 million, up 48%, compared to the nine-month period last year. Revenue from mobile touch-screen applications more than doubled, while revenue from TouchPad applications was impacted by the widely reported softness in consumer notebook demand. On a combined basis, revenue from our primary notebook and mobile markets increased 33% during the 9-month period, while revenue from portable digital entertainment applications declined 87% compared to last year.

In the March quarter, revenue from PC applications was lower than expected, down 15% from the prior year and 13% from the December quarter as a result of the continuing weak consumer notebook market. Substantially, all of our TouchPad solutions are multi-fingered, gesture-enabled. And shipments of our ClickPad solutions were roughly 7% of our unit mix during the quarter. During the quarter, we also began initial shipments of our ClickPad solutions with our image sensing technology.

Revenue from mobile applications in the March quarter was up 90% year-over-year, reflecting continued strong demand for our touch-screen solutions and mobile phones, but was down 9% sequentially, primarily due to seasonality. Revenue mix from PC and non-PC applications was approximately 43% and 57% respectively in the March quarter. Our non-GAAP gross margin in the March quarter was 40.7%, compared to 41% last quarter. Gross margin was within our guidance range, reflective of our overall product mix during the quarter.

Non-GAAP operating expenses were $35.2 million, down slightly from $35.3 million in the prior quarter, primarily reflecting lower-than-anticipated outside engineering costs related to some of our recently announced new products. Head count at the end of March was 652, up 4% from the prior quarter due to planned hiring of engineering and go to market personnel to support our continuing business opportunities.

GAAP operating expenses were down $2.4 million to $43.2 million from the preceding quarter. Share-based compensation charges in the March quarter were $8 million, compared to $9.5 million in the prior quarter.

Our non-GAAP tax rate was 15.3% in the March quarter, down from 16.3% in the prior quarter. The difference in the tax rate from the midpoint of our guidance range contributed $0.02 to net income per share in the March quarter. Our GAAP tax rate was 8%. Non-GAAP net income increased 20% to $19.5 million, or $0.55 per diluted share, compared with $16.3 million or $0.46 per diluted share in the March quarter a year ago.

Turning to our balance sheet, we ended the quarter with $246 million of cash. Cash flow from operations was $21 million, and net cash provided by employee participation in our equity plans contributed $11.4 million. Capital expenditures were $2.7 million, and depreciation was $2.9 million for the quarter. Receivables at the end of March were $97.7 million, compared to $126 million at the end of December. Day sales outstanding of 62 days decreased from 71 days in the prior quarter.

Inventories at the end of March were $32.6 million, compared to $23 million at the end of December, with inventory turns at 10 in the March quarter. We increased our (inaudible) and dye bank during the quarter to ensure adequate supply to make sure to meet production schedules.

Looking ahead to the June quarter, we continue to carefully monitor market dynamics relative to customer order patterns and consumer demand. Based on our backlog of approximately $94 million entering the quarter, customer forecast and expected product mix, we anticipate revenue will be in the range of $138 million to $146 million. We expect PC revenue to be up sequentially compared to the weaker-than-expected March quarter. Mobile touch-screen revenue is expected to be down sequentially, reflecting a higher percentage mix of tail and chip solutions, as we discussed last quarter.

Based on our current customer forecast, which reflects the end of life of several module designs, we expect our mobile revenue mix for modules to decrease from the 45% to 50% range that we've experienced over the last few quarters to approximately 30% in the June quarter and to less than 10% heading into fiscal 2012. While we expect mobile revenue growth to be impacted as we transition away from full module solutions over the next several quarters, we expect our gross margin percentage to increase with a change in mix towards chips and tails.

Taking into account our overall revenue mix, including our module-based notebook business, we expect non-GAAP gross margin for the June quarter to be around 42%, up from 40.7% in the March quarter. As we move through the next few quarters, we expect our gross margin percentage to increase towards the high end of our historical 40% to 45% range, resulting in gross margin dollar growth, outpacing revenue growth over the near term.

We expect non-GAAP operating expenses to increase slightly in the June quarter, primarily from increased engineering headcount. When combined with the upward trends in gross profit percentage, we expect to continue to manage the business within our long-term targeted operating profit model of the mid- to high-teens. We anticipate the FAS 123R charge in fiscal Q4 to be in the range of $8.3 million to $8.5 million. We expect our non-GAAP tax rate for the June quarter will be in the range of 19% to 20%.

Non-GAAP net income per diluted share for the June quarter is expected to be in the range of $0.49 to $0.57 per share. I will now turn the call over to Russ for an update on our business.

Thanks, Kathy. First, I will provide an update on our CEO search. The board is taking a methodical approach, and the search process is ongoing. We continue to meet with a number of qualified candidates, and we will update you on the progress of that search as it concludes.

Now I'd like to make a few comments on our progress over the past few months, starting with the PC market. We continue to maintain our leadership position in the notebook market, and announced new leading-edge TouchPad and ClickPad solutions to enable our customers to differentiate their products on the market.

Several recent TouchPad implementations include the Samsung Series 9, the Toshiba E3O5, and the Lenova ThinkPad E420 and E220 corporate notebooks. All of these models feature our ClickPad solution with image-sensing technology, which enables more accurate finger recognition for use with multi-touch gestures. We also have two new ClickPad design wins in notebooks featuring Chrome OS that we expect will begin shipping within the next few months. There's been substantial interest in our Series 7 product offerings for the tablet market, and we generated our first revenue from this category during the quarter with our ClearPad 7010 single-chip solution in the Huawei S7 Slim Tablet.

We have further strengthened our positioning in large touch-screen applications with our recently announced ClearPad 7020, a single-chip solution for display sizes up to 10.1 inches. And we are also pleased to announce that our Series 7 solutions have been added to, NVIDIA's approved vendor list for its Tegra processors. We expect additional OEMs to launch projects incorporating our Series 7 solutions in the next several quarters and believe the tablet category will represent a meaningful revenue opportunity for us as the market continues to develop.

Turning to the mobile handset market, we achieved very strong year-over-year growth in touch-screen revenue, as Synaptic solutions and portfolio approach have been widely adopted in what can only be characterized as an explosive market for touch-based smart phones. We're actively engaged in designs with the major mobile OEMs and our ClearPad touch-screen solutions are shipping in more than 40 models. Recent smartphone design wins include the Meizu M-9, the Huawei X-3, which features a curved touch-screen, the Sony Ericsson Xperia PLAY, and several other models from LG, Sharp, ZTE and Nokia.

We also recently announced that our ClearPad Series 3 and Series 4 solutions are ready for use with on-cell and in-cell integrated-display touch-screen solutions. These offerings enable our mobile customers to deliver even thinner and higher performance designs with multi-touch gesture support to further enhance the end-user experience.

I'm pleased to report that we have been sampling our ClearPad 3250 solution with several OEMs, and expect to be the first to market with an in-cell enabled phone. In addition, our ClearPad Series 4 is currently the only offering that combines capacity touch technology with the display driver into a single-chip solution, delivering the most advanced display noise management in the industry. We are seeing a high level of interest from top chair OEMs in developing products with this new technology.

I would like to comment on a few trends and dynamics expected to impact our business over the near term. The first is industry analyst expectations for continued softness in the notebook market driven by ongoing weakness in the consumer segment, as well as the impact of tablets on notebook demand. While we are pleased to report our first tablet solution in the market and have design engagements across several of the major handset and PC OEMs, we remain cautious, given that the volumes outside of the iPad have been slower to materialize than many have anticipated.

Turning to the mobile market, unit growth continues to be very robust. As you'll recall, when we entered this market, Synaptics was the primary provider of touch-screen solutions to the handset OEMs and our revenue was comprised solely of integrated module solutions. When we introduced our portfolio approach almost two years ago, we began to offer our customers a choice in what they bought from us, whether a fully integrated module or a tail or a chip. As a result, mobile revenue growth began to lag unit growth as we sold a mix of lower-priced tails and chips and as pricing for modules declined, commensurate with reductions in third-party costs.

At the same time, this approach served to further fuel the strong, rapid adoption of our capacitive touch solutions within smartphones, sustaining our top-line momentum. In fact, as we mentioned earlier, our mobile revenue more than doubled in the first nine months of fiscal 2011.

Last quarter, we signaled that our design pipeline for mobile and large touch-screen opportunities suggested a shift towards tail and shift engagements. As Kathy mentioned earlier, we expect the near-term impact to our top line as we complete this transition, offset by positive accretion in gross margin percentage, which is expected to add further leverage to our strong long-term operating model.

I'll note that like many companies we are closely monitoring the situation in Japan. While we are not immune to the potential ripple effects in our markets from these tragic events, we believe we have taken the necessary actions to ensure our ability to deliver products to meet our customers' demands.

As stated last quarter, we expect -- we continue to expect to end fiscal 2011 with revenue growth of approximately 15% to 17%. This reflects the dynamics we have discussed affecting the fourth quarter coupled with our record performance in the first nine months of the fiscal year.

We have a strong track record of proactively managing our business through a number of cycles, as well as specific customer and product transitions. Despite the near-term revenue head winds, we expect to achieve top-line growth in fiscal 2012 and will continue to manage our operating model for strong long-term growth and profitability. We plan to give you an update regarding our specific guidance for fiscal 2012 on our next quarterly call.

Synaptics is participating in three growth markets that are expected to show strong growth in the future. Industry analysts continue to expect touch-screen penetration to grow from approximately 20% of mobile phones last year to around 50% by 2013.

Notebooks are still projected to be a double-digit growth market longer term, and the emerging tablet market is the latest wave in the next generation of consumer devices focused on mobility and connectivity. With our recent announcements related to innovative touch solutions, our product portfolio has never been stronger.

The investments we have made and continue to make in our technology and product road maps will enable us to continue to deliver innovative solutions to the market and compete effectively in all markets receptive to touch. Design activity is very strong across our broad range of product offerings, and we are confident in our ability to capitalize on the opportunities in front of us. With that, we'll now turn the call over to the operator to start the Q&A session. Operator?

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions).Please ask one question and one follow-up question, and re-queue for additional questions. And our first question comes from the line of Rob Stone with Cohen and Company. Please go ahead.

Hi, Russ and Kathy. A couple questions, if I may. First of all, with respect to the way you're reporting segment, how much was non-PC, non-mobile revenue in the quarter? You said it was small, but --

Yes. Hi, Rob. This is Kathy .It was very small during the quarter. We said that mobile revenue grew 90%, and if you look at the total Handset for hand-held revenue segment, it was, like, 89%. So, you're looking at roughly, $1 million.

Okay. About a million? And which -- I'm guessing it's quite diminutions in this quarter of shipping, but which session are you putting Tablets into?

Tablet right now is going to be sitting -- is sitting in the PC segment, but, as it gets bigger, we will break it out.

Okay. And my second question has to do with the tax rate. What is it that drove the unexpectedly low tax rate, and it's bouncing back up this quarter? And do you have a viewpoint on the likely tax rate for fiscal 2012 and later?

Yes. The normalized non-GAAP tax rate continues to be around 19% to 20%. The reason that it was down this quarter specifically was the closure of some tax years. So, there were some onetime tax benefits associated with that.

So you had some prior stuff that was still open?

Yes, that closed.

Okay. All right. Thank you.

Thanks, Rob.

Thank you. And our next question comes from Ian Ing with Gleacher & Company. Please go ahead.

Hi Russ. Hi Kathy. First question here, so based on your backlog for June, can you give us a sense of the June PC increase offset by the magnitude of the non-PC decline? Would we see a mix of low 50s to high 40s? And how much of the PC increase is actually true end demand versus some replenishment in the channel?

Hi, Ian. As far as the backlog goes, the backlog was about $94 million, so very strong entering the quarter. When I look at the backlog, per se, it's PC and non-PC is fairly represented in the backlog. Looking -- and that's --

Okay.

So that would lead you to a more even mix between PC and non-PC for this quarter.

Okay. Great. And then second question is regarding the China market, obviously a lot of Handset and Tablet wins there it looks like. Is the design-win pipeline largely chips and tails mix like the rest of the world? If so, how do you plan to monetize some of your low cost sensor initiatives like in-cell and on-cell? Are you trying to get them to shift back to modules?

The design pipeline today is reflective of more chip and tail engagements. The in-cell, on-cell capability, as that continues to develop and you see the adoption of that technology in the marketplace, which we believe that you are going to see sooner rather than later -- obviously the need for discrete sensors goes away. So going forward when we look at our Mobile business, we believe that is going to be weighted toward chips and tail engagements. And when we look at the Notebook business today, we believe, based on the data points we have today, that those will continue to be primarily integrated module engagements.

Okay. If I could fit in just one last one here, you cited weak consumer demand. I'm trying to reconcile that with Intel's report where they obviously had a really good quarter, citing some clients, strength in emerging markets, [inaudible] ramps. And they basically went out of their way to refute some of the industry analysts. I'm just trying to reconcile your statements with their statements in terms of --

Yes, I heard the same thing that you did, Ian, and listening to it, sounded to us like there was a lot of benefit related to the enterprise. So I couldn't really pick out too many statements related to Notebook, per se. So I think Notebook in general has just continued to be fairly weak. If we look at analyst projections for calendar 2011. The latest IDC is at maybe 10% for calendar 2011, but some of the other analysts' projections are in the single digits.

Okay. Thank you much.

Thank you. And our next question comes from the line of John Vinh with Collins Stewart. Please go ahead.

Hi. Thanks for taking my question. The first question I had is, can you give us some color in terms of what your market share assumptions -- you talked about your mix shift from 45%, 50% to 30% to less than 10% modules in fiscal 2012. As we progress through that timeline, what are your assumptions in terms of market share? Do you think your market share is stable? Are you assuming a little bit of market share loss, or are you gaining market share there?

As everybody knows, that marketplace is expanding at a phenomenal rate. We believe with our recent expansion to our product portfolio in the technology and product road maps that we currently have on the drawing board, that we're very well positioned to compete effectively in those markets. As of last quarter, outside of Apple, I would say that we were still the largest single provider of Touch solutions into the mobile phone market. And I think we are positioning ourselves going forward to ensure our ability to compete in a very effective way.

You have to remember that to implement Touch is not just the chip; it's not just the sensor; it's not just the software or the firmwear. It's the integration of each of those elements into a subsystem level solution that will integrate seamlessly into the host OS of the end device. As a Company, we're approaching almost a billion units shipped into market today, and I think we have better system level understanding than any of the chip competitors in the market today. And again, when you combine that with the fact we just broadened and strengthened our existing product offerings together with the technology and product road maps we have, I'm very confident in our ability to compete in a leadership position moving forward in all markets that are receptive to Touch.

Okay. That's very helpful. You mentioned the later this year your position to start shipping your in-cell, on-cell solution. As far as I'm aware, you're the only major provider to have integrated IT driver and integrated [true] touch controller. Do you believe that gives you a competitive advantage? And as you start shipping later this year, is there an opportunity for you to gain share with that?

We believe we are in a leadership position in the market with both in-sell and the integrated display driver Touch solution we've announced. And we do expect that, that is going to help us garner design wins going forward. To the extent those ship into phones that garner a lot of unit demand, it will help our position in the market without question. Our challenge is to continue to innovate, so going forward we continue to give our customers a differentiated platform with which to take their products to market, and that's our goal.

Okay. Last question for me, just on ASPs. As we progress through this transition from modules to chips, can you help us think about ASPs?

John the way I would look at that is chip-related solutions, I would look at that as being around $2 or less tail solutions and $2 to $3 range. And both of those are for mobile. We haven't given out any pricing really for Tablets, and we're very new into that market. Does that answer your question?

And what about for modules use?

Modules, again, they can still be a very wide range depending on what the solution is. So as long as it's a Touch screen module, it could still be above the $6 range, and even in the Notebook space, it's a fairly wide range depending upon sizes, Touch pads versus ClickPad, et cetera.

Thank you.

Thank you. And our next question comes from the line of Raji Gill with Needham & Company. Please go ahead.

Yes. You talked about gross profit growth outstripping revenue growth into the year 2012. I'm wondering, maybe you can describe the puts and takes in order to get to that type of number. Any color there? It would imply that margins would have to be up pretty high, nearly getting up to around 43% type of range for you to get -- outstrip that revenue growth, given the significant decline in price that you're going to face on the mobile handset side. So maybe some more color there would be helpful.

As we indicated on the call, Raj, we really believe that with this mix shift we're currently seeing, at the overall corporate level when you blend what our expectations is in the notebook PC applications relative to the mobile applications, that you're going to see our gross margins trend up towards the high end of our historical range of 40% to 45%. Kathy had guided to 42% for the June quarter. So we fully expect that you can see another two to three points upside as we move into the new product mix, that is likely to be sustainable going forward. Now we still have a mix between chips and tails. If you look at those individually, as we've said before, if you look at modules, chips and tails, generally the gross margin percent for a module is going to be less than a tail, and a tail is going to be less than a chip. Because you've got more proprietary content when you're end financial transaction is just a chip. So it sequences that way; and based on our expected mix, again, as we said in the prepared remarks, we expect that you'll see margins toward the high end of that range.

Just last question. You did say that you're going to see revenue growth in fiscal year 2012 despite some of the headwinds in the Notebook market, which, in some of the bearish case scenarios could be single digit growth in calendar 2011. Maybe that rebounds in calendar 2012. I know you overlap, but if you assume ASP erosion, you might not get growth at all in Notebooks in fiscal year 2012. And given the decline in pricing in the Mobile phone side, what's your thinking in terms of trying to achieve revenue growth in fiscal year 2012? Any assumptions maybe you could convey to us?

Again, we're not giving you an official outlook for fiscal year 2012 today. We'll update you next quarter. But our current view certainly suggests we will see revenue growth next year. It's a combination of what we expect out of the Notebook market and the Mobile market. The Mobile market we're expecting to see significant unit growth, year-over-year. In the Notebook market, I think some of the newer solutions we have in the market today, moving image sensing into TouchPad is a more rich end-user experience and commands a premium, as it does when you add on top of image sensing the ClickPad solution. So I think we do have some elements in the notebook market depending on how we can drive adoption or penetration that can help offset, one market weakness; and B, typical price erosion within a specific skew.

Thank you.

Thank you. And the next question comes from the line of Charlie Anderson with Dougherty & Company. Please go ahead.

Good afternoon. Thanks for taking my questions, and thanks for all the added detail on the mobile phone side. So I guess I'll start there. You guys talk about going to less than 10% being module next year. Can you give us a sense of how it ramps down to that? Is it pretty smooth down? Or are you already below 10% by mid-year of fiscal 2012? That would be helpful.

Hi, Charlie. Basically in the prepared remarks, we said entering fiscal 2012, it would be less than 10%.

Got it. So you'll be there already, and we'll be less than 10% the full year, right?

Right. Most of the transition is, as I stated in the prepared marks, is a step down in the June quarter, and then entering fiscal 2012 sub-10%. So we're at a relatively low level at that point going forward.

Got it. And then, in terms of OpEx, you had been ramping that up, and I remember, if we go back even six months, hiring was a constraint for you guys. Feels like we're starting to flatten out here a little bit. Can you give us any color on where you are moving forward there?

Well, we are continuing to hire, and as I outlined, we were up 4% last quarter in headcount primarily in hiring for a key engineering position. From an operating expense standpoint, we were up just slightly from the last quarter, and that was primarily due to outside engineering services that we were using to ramp certain of our new product. So going forward we do expect some slight increase because we are continuing to head engineering personnel. We're continuing to manage that reasonably well, and hiring in the key areas that we need.

Great. Thanks so much.

Thank you. And our next question comes from the line of Yair Reiner with Oppenheimer. Please go ahead.

Hi. This is Mike calling in for Yair, actually. Thanks for taking my call. Most of my questions have already been answered, but I just want to confirm, the module mix that you had mentioned, is that as a percent of shipments or sales?

That module mix is revenue.

Okay. Handset revenue that is.

Right. So, of the total mobile revenue we've been experiencing over the last several quarters around 45% to 50% module-based revenue, within the total pool of mobile revenue, and we're expecting that to move down to 30% in June, and then sub-10% entering fiscal 2012.

Okay. Thanks. And in regards to Tablets, -- I'm sorry. In regards to OpEx, do you see your R&D declining, as we see that mix shift to chips and tails?

No. I think that overall we're still hiring for engineering, and when we look at the components of our operating expense, our operating expense targets have been in the range of 20% to 24%, and R&D has been 13% to 15% of revenue. And as we go forward with the lower ASP based revenue, R&D may go up above 15%, but we're still looking over the longer term of managing around the upper end of our operating expense target. With improved gross margin percentages continuing to achieve mid to high teens from an Op profit standpoint.

Got it. Very helpful. One last follow-up, if I may. Do you have any plans for cash usage, as you might see -- as you're generating free cash flow here, any plans for cash usage here?

Well, we have repurchased stock on a regular basis. So if -- for the fiscal year, we repurchased about 4% of our shares outstanding, and we have a stock buy-back authorization for another $98 million through April 2012. So we continue to look at that stock buy-backs on an opportunistic basis as we go forward. Other uses of cash, obviously, the first use of cash is investing in our core business, and then we continue to look at further strategic opportunities as we go forward.

Okay. Thanks very much.

Thank you. And our next question comes from the line of Kevin Cassidy with Stifel Nicholas. Please go ahead.

Hi. This is [Neil Mestizo] calling in for Kevin. I just had a quick question on the Tablet side. You guys had mentioned you're making a little traction there, and you qualified with Nvidia. Just looking ahead, where do you guys think you might see growth in the tablet area maybe geographically?

Again, Tablet is one of those markets today that there's a lot of buzz about it; but when you look at volumes in the market outside of what iPad has been able to drive, it really hasn't been significant for any one of the OEMs, and I guess I would use the iPhone as an example there. The iPhone was in its fourth generation before some of the OEMs had phones out there that were competing effectively. So it isn't just the hardware itself; it's having the entire ecosystem, which includes the hardware, the applications, the ability to deliver and service it. So we continue to believe that market is going to develop in a way that other companies, just as in the phone market, will figure out ways to compete there effectively and drive units that represent meaningful opportunities. So we're going to continue to track those, and we are engaged, as we said on the call, with a number of both PC and mobile-based OEMs to bring large Touch screens into the market. So from our perspective -- large Touch screen includes Tablets and slates, but it also includes things like E-readers, large Photo Digital Frame-type products. There's point of sale opportunities there. There's other categories of products that large touch screens can feed into in addition Tablets and Slates.

Okay. Thank you. And final question -- I'm sorry if this has already been asked, but I was just hoping to get some of the puts and takes for the next quarter's top line guidance, because you guys mentioned that PC revenues should bounce back a little bit from the lower than expected March. Maybe what's driving a little bit of that, and what's the offset to that, resulting in the sequential decline overall?

Well, as I mentioned on the call, the range of guidance for the June quarter, $138 million to $146 million. If you drill down into the backlog entering the quarter was about $94 million. If you drill down into the backlog, both PC and non-PC applications are fairly well represented in the backlog. So I would expect that the mix between PC and non-PC becomes a little more even in the June quarter.

All right. Thank you.

Thank you. (Operator Instructions).Our next question comes from the line of Shaw Wu with Stern, Agee Investment banks. Please go ahead.

Thanks. Hello, Russ, Kathy. I just wanted to figure out this transition in terms of the revenue headwind. It looks like you've guided to about $142 million, about flattish sequentially in terms of the midpoint of the range. I'm just wondering, if it were not for this transition to chips and tails, where would that range be more likely? Just ballpark, whether in percentage or even dollars. Thanks.

One of the things that impacted us this quarter in our outlook going into next fiscal quarter is we actually had some module designs that have gone to end of life earlier than they were -- than we had anticipated. And that's reflected in the customer forecast that we've got and in our communications with the customer. Answering your question, assuming that those products would have continued to ship in the market, then we obviously would have been guiding to a higher revenue level. But in the absence of those units at those selling prices, what you're seeing now is our best view based on the data points we have, using the backlog going into the quarter in addition the customer forecast and the turns business, the new orders we've seen since entering this quarter. So that's what the current guidance reflects, is the mix we're expected.

Okay. That I understand, but in terms of percentage, is it -- I don't know if you can measure that in percentage. Is it a 5% overall impact? Any color there?

The only thing -- as I said on the call, Shaw, over the last few quarters, when you look at the total module or the total mobile revenue dollars, about 45% to 50% of the mobile revenue dollars were module-based revenue. And as we get into the June quarter, we're saying it looks like around 30%, and so as Russ said, we've got some end of life on module-based programs coming in a little bit earlier than expected. So that's just what we're seeing at this point in time, is that we're going from a 45% to 50% module based revenue to 30%, down from there to less than 10%.

Okay. And since you have some visibility in terms of where that mix could be for chips and tails in the September quarter, you're not getting the guidance. Why wouldn't you give some guidance there to reset the bar?

We've given you our best view today. We're telling you we're entering fiscal year 2012, which is the September quarter, where we're expecting the mix of modules in our mobile revenue contribution to be less than 10% of overall revenues. We just haven't formalized our outlook for fiscal year 2012 yet, and we'll give you a more definitive view on that on the next call.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Rob Cihra with Caris & Company. Please go ahead.

Hi. Thanks very much. Two questions. First on the ClickPad just being 7% of the mix down from I think 10% last quarter. Can you update us on what is going on there. I know you already had it drop last quarter. I'm wondering if you think that gets back to a good upward momentum. And then separate from that, if you look at your pipeline along those lines of what's already been mentioned 50 times, whatever the 45% to 50% mix going to 30% going to less than 10%.But if you look at that pipeline for fiscal 2012, do you find of the handset designs you're in, that the mix looks any different than the mix of when you were designing more with a module? What I mean is, are you in more low-end handsets or more high end? I'm guessing more low end, but I'm wondering if it -- if the mix of what you're in looks differently than what you've been in historically? Thanks.

With regards to click data, 7%, relative to 10% last quarter, I think what you're saying there is most of our ClickPad solutions have sold into consumer-based notebook platforms and with just weakness in the consumer segment, I think that explains that 3% variation. With regards to the shift in the mix from modules to tails or chips, that's not really indicative of whether they're high-end or mid-end or low end Smart phones, Rob. It's indicative of the engagement model the customer elects. Again, we are the only provider in the market today giving the customer a choice. And then the other part of whether it's high, low or mid, remember with the introduction of the in-cell and on-cell capability, where you're actually going to build the sensor into the LCD stack-up, which can make the devices thinner, require less power, make them more responsive. Just driving that technology into adoption is going to lead you to either a chip or a tail engagement anyway, because the opportunity to serve that with an integrated module with a discrete solution, a discrete sensor just won't be there.

Okay. And so, though, even beyond just the chip versus module, do you find your pipeline looks you designed much different than you had in the past, or would you say it's basically across the board, and no real change?

In terms of the opportunity of what segment of the market the phone is going to sell into, I would say it's relatively unchanged. What we are trying to drive here, obviously, are lower-priced alternatives that will give the OEMs an opportunity to drive touch deeper within their product lineup.

Great. Okay. Makes sense. Thank you.

Thank you. And our next question comes from the line of Lauren Stoller with Lazard Capital Markets. Please go ahead.

Hi. Thanks for taking my question. Can you hear me?

Yes.

Okay. Great. You might have mentioned this and I missed it, but I'm just wondering if you could go into ASPs for the Series 7 single-chip solution for the Notebook market, and also maybe the impact on gross margin. Not Notebook. Sorry. Tablet.

Well, Tablets, as we've talk about, we expect tablets to also be chips and tails solutions, because the Tablet product offering is different than the Mobile product offering. We haven't really announced what ASPs are expected to be for those particular products. In the Series 7 family, we have multiple chip solutions as well as single chip solutions, and our expectation is that ASPs will be at least the level of mobile, if not better.

Okay. All right. Thank you.

Thank you. And our next question comes from the line of Brett Carson with GARP Research. Please go ahead.

Thanks. Can you give us any updates on your Notebook market share? Are you seeing increased competition in that segment? And secondly, when you talk about the shift toward chips, we're just talking about Phones and not Notebooks, correct?

No; that's correct. Right now, the dynamic of the shift from modules to either a tail or chip solution is primarily in the mobile market. And your other question?

I want to get an update on your market share with the Notebooks and any new competitive pressures that you may or may not have seen recently.

I think the competitive landscape in notebooks remains essentially the same. As we said in the past, our belief here is that as touch becomes more pervasive, we're going to have to anticipate and expect increased competition in all markets. But as of today, I think the competitive dynamics of the Notebook market are relatively the same. I think that's been some share shift between ELON and ELPS, and we do see some of the chip guys marketing solutions into Notebook computers today. But as we said in our prepared remarks, we continue to track the leadership position. I think we're still north of 65% share overall, and I don't see anything near term that's going to change that dynamic for us.

Great. Thanks.

Thank you. And we have a follow-up question from the line of Raji Gill with Needham & Company. Please go ahead.

Yes, thanks. I guess I'm just going back to this -- the module shift change. It seems very aggressive to go from nearly 50% of modules, which we don't know the exact pricing, because you don't give it out. But I would assume anywhere between $3 to $6, to less than 10% in entering in the fiscal year 2012. Even if I assume 10% revenue growth for mobile in fiscal year 2012, that basically implies you're going to grow units nearly a 100% to offset that pricing degradation, and the market itself is probably going to double. So growing a 100%. But unless the market grows 200%, even then, that share is going to be split between Cypress, Atmel and yourself. So I have a hard time trying to reconcile the math of how you would even grow in the Mobile Phone business in fiscal year 2012. So I basically assume that chip pricing is around $1.50, $1.80, in that range. It seems a massive unit growth, well over the market --or in line with the overall market rate, but implying you're going to get all the market.

Well, again, based on the way that market is growing today, the latest industry analyst forecast I've seen for next year growth there is still fairly robust. And again, we're going -- remember, we're going to market here with multiple solutions still. It isn't just chips for us. It's a combination of chips and tails.

So maybe it would be a bit more granular -- you say 10% is going to be sub-module. What's the percentage of chips and tails? Because there is, you said, a price difference between chips and tails. Can you provide clarity on that?

No, we don't have a basis today to give you any more detail on that, and it's likely that we won't going forward.

All right. Thanks.

Thank you. That concludes the time that we have available for questions. I would now like to turn the conference back over to management for closing comments.

Thank you, everybody, for joining us on the call today, and we look forward to updating you next quarter. Thanks.

Ladies and gentlemen, this does conclude our conference. We thank you for your participation, and you may now disconnect.