Synaptics Inc (SYNA) 2011 Q4 法說會逐字稿

Welcome to the Synaptics fourth quarter 2011 earnings conference call. During today's call, parties will be in a listen-only mode. (Operator Instructions). This conference is being recorded today, Thursday, July 28, 2011.

I will now like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead.

Thank you, Marissa. Good afternoon, and thank you for joining us today on Synaptics fourth quarter and 2011 conference call. This call is being broadcast live over the web and can be accessed from the Investors Relation 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 noncash share-based compensation charges and certain other non-operation and noncash items. Please refer to the press release after market close 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 of 2012; expected increases in gross margin percentages and operating leverage related to the product mix shift; anticipating revenue in 2012, including expectations for revenue in the first half and second half of fiscal 2012; the Company's optimism about the strength of its technology portfolio; the Company's expectations of additionally OEMs launching products incorporating its Series 7 solution in fiscal 2012; the Company's view on the development on the tablet market among the broader set of OEMs; the Company's expectations that lower cost advanced technology products will fuel market penetration of touchscreen products; theCompany's expectations of unit growth in the notebook and mobile markets, including broadening its mobile customer base;the Company's expectation of the adoption of its new imagine sensing and ClickPad solutions;the Company's belief that it is well positioned to meet the markets.

Actual results may differ materially from any further performance suggested in the Company's forward-looking statements. We refer to you the Company's SEC filings, including Form 10-K for the fiscal year ended June 30, 2010, for important risk factors that could term differently materially from those contained in any forward-looking statement.. We expressly disclaim any obligation to update this forward-looking information.

I will turn the all over to Russ Knittel. Russ?

Thanks, Jennifer. I would like to welcome everyone to today's call.

I'm pleased to report that fiscal 2011 marked our third consecutive year of record revenue and net income. Revenue was $599 million, up 16% from the prior year, while net income and earnings per share were both up 20% to $63.8 million and $1.80respectively.

Revenue for MobileTouch screen applications increased 72% for the year, with units more than doubling, and represented 51% of revenue compared to 34% in the prior year. This strong mobile demand more than offset the general softness in the consumer notebook market and the anticipating decline in revenue from portable digital applications.

During fiscal year 2011 we made tremendous progress in enhancing and broadening our product portfolio, which has led to customer engagements for next generation touch interface solutions. We are very optimistic about the strength of our technology portfolio relative to the upcoming adoption of emerging technologies by our customers such as sensor on lens and on cell and in cell integrated displays.

I'll now ask Kathy to review our financial results in detail, then I'll provide with you a closer look at product developments, trends in our markets, and our current outlook for fiscal 2012 before take the question. Kathy?

Thanks, Russ.

Revenue for the June quarter was $143 million, slightly above the prior quarter. Revenue from the PC market was stronger than expected, while revenue from the non-PC market was weaker than anticipated, reflected OEM customer dynamics in the mobile market. As a result, the revenue mix from PC and non-PC applications was approximately 54% and 46% respectively.

In the June quarter, revenue from PC applications was down 8% year-over-year, but increased 26% from the March quarter due to continued strength in the notebook enterprise market, new product launches and preparation for the back to school season, and channel fill, given that PC OEMs had been reducing overall consumer notebook inventories earlier this year. As noted last quarter, nearly 100% of our shipping TouchPad solutions are multi-finger gesture enabled. Our market share continues to be in the 65% range and our design win performance in the notebook market for TouchPads and ClickPads continues to be very strong.

Revenue from mobile applications in the June quarter was up 10% year-over-year, reflecting continued demand from our -- for our touch screen solutions in mobile phones, but was muted by a lower mix of modules as discussed on last quarter's call. The transition from modules to more chip and tail solutions was also evident sequentially in addition to the customer dynamics I mentioned earlier, as mobile revenue was down 19% compared to the March quarter. Tail and chip solutions have lower average selling prices, but higher gross margin percentages than full module solutions, which was the primary contributor for the 170 basis points increase in non-GAAP gross margin from the prior quarter to 42.4%. As we signaled last quarter, we were pleased to see that gross profit grew 5% and operating profit grew 7%, both outpacing revenue quarter on quarter.

Non-GAAP operating expenses were $36.3 million, up $1.1 million from the prior quarter, primarilydue to increased staffing partially offset by reduced outside consulting engineering costs. GAAP operating expenses were up $1.1 millionfrom the prior quarter for $44.3 million. Share-base compensation charges in the June quarter were $8.2 million, compared to $8.4 million in the prior quarter. Head count at the end of June was 676, up 4% from the prior quarter, reflecting planned hiring of engineering and go to market personal to support our expanding business opportunities.

Our non-GAAP tax rate was 20.1% in the June quarter. The tax rate in the March quarter of 15.3%included a one-time benefit related to the closure of a tax year. Our GAAP tax rate was 16%.

Fourth quarter non-GAAP net income was $19.8 million, or $0.57 per diluted share. For the full fiscal year, non-GAAP net income was a record $88.9 million, or $2.51 per diluted share.

Turning to the balance sheet, we ended the quarter with $247 million of cash. Cash flow from operations was $25 million, and we used $30 million to repurchase our stock. For the fiscal year, cash flow from operations was $90 million, and we used $70 million to repurchase nearly 2.5 million shares of our stock, or over 7% of our total shares outstanding. Net cash provided by employee participation and our equity plans contributed $5 million for the quarter and $23 million for the year.

Capital expenditures were $1.9 million for the quarter and $11.6 million for the year. Depreciation was $3 million for the quarter and $11.2 millions for the year.

Receivables at the end of June were $93.8 million, compared to $97.7 million at the end of March. Days sales outstanding of 59 days decreased from 62 days in the prior quarter. Inventories at the end of June were $28.9 million, compared to $32.6 million at the end of March, with inventory turns at 11. The decrease in inventory was primarily due to lower finished units and component inventories.

Looking ahead to the September quarter, we continue to carefully monitor market dynamics relative to customer order patterns and consumer demand. Based on our backlog of approximately $76 million entering the quarter, current customer forecast, and expected product mix, we anticipate revenue will be in the range of $128 million to $136 million.

We expect PC revenue to be flat to down compared with the relatively strong June quarter, which reflects the impact of channel restocking in the prior period and the timing of our sell-in versus sell-through to the end of devices.

In mobile, the mixed shift toward tail and chip solutions, coupled with [this cusp] competitive dynamics among OEMs in the end market, will result in a sequential decline in MobileTouch screen revenue. Based on current customer forecast, which reflects the end of life of several module designs, we expect our mobile revenue mix from modules to decrease from approximately 30% in the June quarter to less than 10% heading into fiscal 2012. These levels are well below the 45% to 50% range that we experienced over the last few quarters prior to the June quarter that just ended.

Taking into account our overall revenue mix, including our module based notebook business, and the change in products mix for MobileTouch screen, we expect a further increase in non-GAAP gross margin for the September quarter to the range of 43.5% to 44.5%. We expect non-GAAP operating expenses to increase in the September quarter, primarily from increased engineering headcount. We anticipate the FAS 123R charge for the first quarter to be in the range of $8.1 million to $8.4 million.

We anticipate that our non-GAAP tax rate for the September quarter and for the year will be in the range of 20% to 22%, reflecting our expected product mix and geographic profit mix. Non-GAAP net income for diluted share for the September quarter is expected to be in the rain of $0.40 to $0.50 per share.

I will now turn it over to Russ for an update on our business.

Thanks, Kathy.

First I'll provide an update on the CEO search. As I indicated last quarter, the Board is taking the time necessary to conduct a diligent methodical search in order to find the best fit for the position. The search is ongoing, and we'll update you when the process reaches its conclusion. In the interim, the team continues to focus on executing on our strategic initiatives.

I'd like to make a few comments on our progress over the past few months, starting with the PC market.

We continue to advance our leadership position in the notebook market with our latest innovation, InterTouch, which we unveiled at Computex. InterTouch eliminates the bottleneck created by the limited capacity of PS2 communication paths, allowing faster transmission of multi-touch full-print finger tracking information by leveraging the existing I2C high speed interface. The result is increased data transmission rates of 10 to 40 times, delivering an enhanced moving experience analogous to moving from dial-up to broadband in terms of speed and responsiveness. We are pleased to report that several of our tier one OEM customers are adopting InterTouch, and we expect it to be available in the market by mid fiscal year 2012.

Double recent ClickPad implements with image sensing technology include an HP Envy, the Lenovo ThinkPad X1 and X220, the Sony Vaio Z and several other models, including the Google Chrome books from Acer and Samsung. Following the debut last quarter of our ClearPad 7010 single chip solution in the Huawei S7 Slim Tablet, I'm habit to announce this solution is currently shipping in another tablet from Huawei, the recently launched MediaPad, which is the world's first 7-inch tablet based on Android's Honeycomb 3.2 operating system.

We expect additional OEMs to launch products incorporating our Series 7 solutions over the course of fiscal 2012. That being said, there's no question that the tablet market has been slower to develop among the broader set of OEMs, who continue to rethink their strategies given the strength of the category leader.

Turning to the mobile handset market. Our ClearPad touchscreen solutions are shipping to more than 45 mobile phone models, supporting a wide range of operating systems, including new devices from LG, Huawei, [UNECE] , PMC, Sharp, and ZPE. Two of the Sharp models currently shipping in the market, the [Ryoko] and the [AU], feature our sensor on lens solutions. Sensor on lens implementations eliminate the need for a separate discrete sensor, achieving slimmer designs and lower system costs.

We're also actively engaged in designs with top tier OEMs for on cell and in cell solutions with our ClearPad 3200 and our latest 3250 offerings, and expect to see revenue from these products in fiscal 2012. In addition, we're sampling our most advance Series 4 solution, which combines touch and display driver capable into a single chip for on cell and in cell integrated displays.

The interest level in developing products based on these next generation technology is very high, given the ability to deliver thinner and higher performance designs with multi-touch gesture support to further enhance the end user experience. We expect our advanced technology products will also enable lower overall total cost solutions and further fuel market penetration and growth for our touchscreen product.

As we touched on last quarter, I'd like to provide an update on trends and dynamics affecting our business as we enter fiscal 2012.

Given that current customer forecasts and industry forecasts suggest increased notebook demand in 2012, we expect notebook revenue to be up in fiscal year 2012, based on an anticipated increase in unit shipments along with higher adoption with our image sensing TouchPad and ClickPad solutions, which carry higher price points. We expect revenue from tablets to be additive as we move through the year.

In the mobile market, the penetration of touchscreen solutions in smartphones continues to grows at a rapid pace. Based on our current design activity, we expect to broaden our mobile customer base this year and anticipate our unit growth with outpace the overall market. However, we expect revenue to be down compared to fiscal 2011, primarily reflecting the tough compares resulting from the shift away from module touchscreen solutions.

Considering these trends as a whole, we expect revenue in the first half of fiscal 2012 to be down compared to last year, returning to double digit revenue growth in the second half, and resulting in revenue of flat to slightly up for the full year. This is similar to what we saw in the first half of fiscal 2010 following the introduction of our portfolio approach of modules, tails and chips to our mobile OEM customers. The positive side of this mobile product mix shift is the expansion of our gross margin percentage, which will add additional operating leverage to our business model.

In summary, given the business and market dynamics just discussed, we believe we're executing well and our outlook is positive. We made great progress during the year in enhancing and broadening our product portfolio, and we are very pleased with our customers' response, evidenced by increased design activity. We enter fiscal 2012 well-positioned to meet customer requirements and the expanding market opportunities in front of us. Our underlying business is strong and look forward to returning to solid top line growth in the second half of the fiscal year.

On behalf of the Board and myself, I'd like to close by expressing our sincere appreciation to our dedicated employees around the world, our customers, partners and suppliers for their many contributions to our success over the past fiscal year. I'd also like to thank you, our shareholders, for your continuing support.

With that, we'll now turn the call over to the operator to start the Q&A session.

Thank you. (Operator Instructions). Our first question comes from the line of Rob Stone with Cowen and Company. Please go ahead.

Hi, Russ and Kathy. Couple of questions related to the product mix to start. One is, I assume from what you said that you're going to be classifying tablets in the PC segment, is that right?

That's what I said last quarter, Rob.

Okay. And you said in the press release and prepared remarks that the mobile revenue is almost entirely handsets. Can you characterize roughly the size of the non-handset piece and say what's in there?

That piece is still less than a $1 million, so that's still other types of touchscreen applications.

Okay --

So just miscellaneous digital equipment.

Right. My second question is on the outlook for the rest of this calendar year. Normal PC seasonality, we would see a stronger period going into the holidays. Your backlog, however, is, if I have the numbers right, as low as it's been in about seven quarters. Do you have other indications from OEMs and so forth that would give you comfort the PC business going into the December quarter?

Rob, on the backlog, it's $76 million. That's about 56% basically at midpoint of our guidance. One of the reasons that we've been trending with high backlog over the last couple of quarters is that the longest lead time products that we've had have been the mobile ClearPad solutions, and so when we've looked at the backlog entering each quarter, there's a pretty substantial amount of the mobile ClearPad. So when we look at the mix of products with chip, tails and PC, the turn time is shorter from those products.

The other thing as far as notebook, which I tried to point out, was that we saw a big June quarter, and typically we always have some of the -- we sell earlier in than the OEMs sell out in a lot of cases.

Okay. Do you have design in activity -- you mentioned that you're looking forward to notebook growth on the year with increased use of your newest image sensors and ClickPads and so forth. So do you have indications like that, that leave you feeling good about the fourth calendar quarter? I know you're not guiding for that quarter yet, but just trying to get a general sense.

Yes, I mean the design activity is very strong and the new -- not only -- that's across TouchPads and also quite a few new designs with the newer image sensing ClickPads. I mean, I think -- our expectation is to track the market, and market -- based upon industry expectations, market is still expected to grow. It's continuing to be soft and calendar 2011. Most of the industry numbers that I've seen for calendar 2012 still except at least upper single digits if not continuing double digit growth.

Okay. The final question for Russ, please. On the Series 4, the devise that integrates the display driver chip with your chip, you mentioned customer engagements. Can you say what with the time span might be to go from that to products incorporating Series 4 in the market?

Well, we're sampling now, Rob, with some major OEMs. Time to market, though, I won't expect to see any Series 4000 implementations until the second half of the year.

Second half of the fiscal year?

Second half of the fiscal year, correct.

Okay, thank you.

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

Yes, good afternoon. Thanks for taking my questions. I'll just start by honing in, Russ, on your comment about outgrowing the market, I think on the handset side. I wonder if you could talk about the size of the market growth that you see in your fiscal 2012 and your growth rate relative to that? And then you talked about bringing on some new customers. I wonder if you could just add a little bit more color commentary on is that because of technology, is that because of dual sourcing type of arrangements? Just any color on what's allowing you to take some those design wins.

Well, one of the challenges that Kathy pointed out in her comment was the fact with our current customer base, the competitive dynamics and the marketplace are impacting our top line growth. So clearly one of the things that we have to do moving forward is to broaden our customer base in the mobile market. And given our recent introductions of our ClearPad 3200 Series 4000 offerings, it puts us into a position for on cell and in cell touchscreen applications.

And so when you look at those offerings, coupled with our ongoing technology and product maps, I think we're in position to compete effectively across the board. And based on current design engagements, we're very confident that we'll be able to broaden our mobile customer base this fiscal year.

And did you have a sense of what the market will grow out? What kind of rates relative to what it did in your fiscal 2011?

I think the ranges we've seen for smartphones in calendar 2012 is something north of 50%.

Got it. Then if I just -- hone in on the Q1 guidance, if I could. I think you guys have gotten more design wins with some Japanese OEMs recently. Of there any impact to the guidance due to any softness there?

I think it's primarily as we talked about, it's really the move to the chip and tails solutions, and also coupled with the customer dynamics that Russ just talked about in our current customer base, so that's -- moreof that is really impacting some of our current larger customers.

So in terms of like the mix shift versus what's going on otherwise, would you say that your units in mobile are going to be up in Q1 year-over-year?

Units, yes, they should be up.

Great. Thanks so much.

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

Hi, thanks for taking my question. Kathy, I was wondering if you could talk about what the attach rates of ClickPads in the quarter was and how you expect that to trend going forward?

Sure. ClickPad we've been -- as we've talked about it for a couple of quarters, the actually -- the adoption rate on the current first generation ClickPad has been going to end of life, so when we initially started with ClickPad, we had I would say higher expectations for them. But with the lackluster growth in the consume market, the adoption rate didn't get to where we originally thought.

So what we're seeing right now is the adoption of ClickPad has been trending down over the last couple of quarters, again for the new -- for the old design, and the newer designs with image sensing technology is just starting to take off. So in the quarter the adoption was around 4%, and as we go forward we're looking at -- the next couple of quarters will still be fairly low, and then it should start trending up again in the back half of the year with higher adoption rates.

Okay. So if I think about your PC growth for fiscal 2012, higher attach rates of higher ASP products and units should trend with the market, would it be safe to assume that you guys would expect to outgrow kind of the overall PC market?

Well again, I think in Russ's comments he indicated that our new image sensing TouchPads and ClickPads and are typically higher-priced solutions. So unit growth, we expect to grow with market. ASPs, we expect to have a little bit of favorable trend.

Got it. Okay. Then switching to smartphones. I just want to clarify the guidance for the September quarter on handsets. You said that was primarily driven by -- lower revenues was driven by mix. Can you also just clarify weather handset units are actually going to be up in the September quarter?

Yes, they are.

Okay. And then you also have a very large tier one customer that's talked about product delays. Were you -- were your September quarter handset forecasts also impacted by any delays or product delays or push-outs?

Yes, that's basically when we talked about the dynamics within the customer base. I mean, that's one of the main things that we were talking about. And that impacted -- we saw that impact in the June quarter and also in our guidance for September.

Okay. And then last question for me on tablets. You guys talked about tablets being a meaningful incremental opportunity for you guys in fiscal 2012. Can you give us an update? I know you talked about a couple of design wins you're in, but you're lagging your competition a little bit in terms of the traction that you're getting there. Can you give us visibility about what does your backlog look like, what does your design pipeline look like, and how do we think about the tablet revenues for you guys in fiscal 2012?

We have two designs in the market shipping now, both with Huawei. I think it's widely documented that many of the OEMs who are interested in tablet opportunities are rethinking their strategies, given the strength of the category leader. And clearly we've seen the impact of that. There were some design wins that we had that we expected to be in the market with in the next quarter that have been delayed because of our customer base currently now sitting back and rethinking how they want to approach that market.

Thank you.

Thank you. Our next question comes from the line of Jeff Schriener with Capstone Investments. Please go ahead.

Yes, thank you very much for taking my question today. I want to clarify something regarding the guidance. I think you guys talked about 30% of modules in June, but going down to about 10% entering fiscal year 2012. If they're all ready down to a significant level, why isn't mobile doing a little bit better than what you're guiding for September?

Well, remember, we're talking about year-over-year compares here. If you look at the first half of fiscal 2011, that's when we were shipping -- when modules were representing 45% to 50% of off overall revenue. Exiting June, right, we were 30% in June, saying that we'll be somewhere below 10% in the September quarter. And based on the current pipeline of design opportunities and the design wins that we have, we don't expect to see an increase in that mix of modules versus tails and chips.

So it's the year-over-year compares that are creating that dynamic, as Kathy just said. We expect units to be up sequentially and year-over-year in mobile, but you won't see that reflected in our top line because of that mix shift to lower price sell points represented by tails and chips.

Help me if I'm getting this right, Russ. You'll see up units in September. Your revenues are down, but they're down because somewhat of the module shift, but more so all -- an added kicker that you're seeing ASP erosion in chips and tails.

No. What I said (inaudible -- multiple speakers) --

So why would your revenues be lower sequentially for mobile if the module is getting an improvement sequentially from June to September? I guess that's the question I'm trying to figure out.

It's not. Modules represented 30% of our mobile revenue mix in the June quarter. Module we represent less than 10% of our mobile revenue mix in September. The price points I'm referring to are relative to modules versus tails versus chips.

Okay, I've got it. I've got it. I follow you now. Thank you very much. Just trying to follow-up --well, another question I wanted to follow-up with was just the coded guidance there in gross margin. It sounds like you're seeing a pretty decent step up in December. Obviously I think there's some benefit there as you're shifting to the chips and tails. Does the guidance for fiscal year 2012 kind of imply a similar range to September?

What we talked about for -- what we've been talking about for gross margin is that the, as we transition to this chips and tails for a mobile base business, we would expect the overall blended gross margin to approach our historical range. In the top -- we saw at one point the top end of historical range of 45%, so we're still looking at additional opportunity beyond what we ranged for the September quarter for gross margin improvement.

So, Jeff, what you have to remember though is half of our business is still coming from the notebooks, which is 100% modules today. So at the corporate level, it's still going to be a blend of modules, chips and tails.

That's fair enough. Final question for me, I appreciate your team. Could you help us understand a little bit? You were talking about the growth and the top line, but it seems like the growth on the top line may be a little bit slower than what you'll expect on the bottom line, given some from leverage from gross profit. Are you expecting to grow at a higher rate, let's say, in terms of your earnings per share for fiscal year 2012 verses what you're guiding for top line?

Well, for the top line we guided flat to slightly up. And with the gross margin expansion that we've all ready talked about and what we've signaled for the September quarter, you will see additional operating leverage, which is a very positive thing in this mix shift from modules and tails and chips. So without question, our gross margin dollar growth, our operating profit dollar growth, and our net income dollar growth next year will outpace what we see on the top line.

Thank you. (Operator Instructions). Our next question comes from the line of Anthony Stoss, please go ahead.

Russ and Kathy, most of my questions were answered, but I with love to throw out new verticals, Russ. It's something that you guys have talked about in the past; TVs, autos, thermostats, appliances. I would like to get an update on where you think the market is there, since we didn't hear anything in the prepared remarks. Also, Kathy, if you wouldn't mind commenting on where headcount stands today and where you guys think it will stand a year from now.

Tony, today there's no question that adoption of touch in consumer elections is just beginning. The early was the notebook, OEMs and we've now move into mobile handsets. You've got the tablet category. So you'll see touch more and more in consumer appliances going forward. There's no question about that. With the movement to chip solutions, with design tools to support them, it potentially gives us an opportunity to look at some of those markets earlier than we might have been able to if we had to continue grow our multi-discipline engineering team at the same pace we have had to do historically.

As it relates to head headcount, we'restill investing. We are growing our engineering resources. We need to expand our capabilities to address the ever increasing demands our customers as they think about how they engineer their devices. This recent movement to sensor on lens, in cell and on cell, integrated displays. You look at our Series 4 now, where we've integrated the display driver with the touch chip into a single chip solution. All of those things are going to give us the ability to deliver a platform that will allow our customers to better differentiate their products in the end markets.

Okay. Kathy, headcount? And then I had a follow-up for Russ.

Sure. Headcount at the end of the June quarter was 676.

Do you expect that to tweak up a little bit every quarter like it has?

Yes, it's similar to what it has. It may not be at the same -- exactly at the same rate. We're always looking at the positions that we really need, and when we see the right skill set for some of the critical positions in engineering, we'll fill them.

Okay. Russ, I'm in the same camp where a little confusion on the module 10%, tails and chip 90. Maybe you can help us separate out tails from chips only. What do you expect your revenues to be in September chip only?

Well, at this point, Tony we're not getting to that level of granularity. There's not a significant difference -- there's not the same difference in selling price between a tail and a chip engagement as there is between modules and then when you get to tails and chips. So we think -- based on the mix we saw last quarter, we're still today seeing more tail engagements than chips, but it's really hard to forecast how that's going to develop moving forward. Because, again,remember, even though you're seeing module content in mobile revenue contribution go down, we are still offering our customers the choice of whether or not they want modules, tails, and chips. So going forward we're going to align with whatever our customers want us to do, and that's what we'll ultimately be reflected in our future mix.

Okay. We can take it offline. Thanks, Russ. Thanks, Kathy.

Thank you. Our next question comes from the line of Raj Gill with Needham & Company. Please go ahead.

Yes, thank you. On the fiscal year 2012 guidance, particularly looking at the mobile phone, you talked about you guys growing with the overall market in which you kind of handicap around 50% growth. But then you mentioned you feel that mobile revenue will be down year-over-year from fiscal year 2012 to fiscal year 2011, so that implies that ASPs are going fall more than 50%. I want to get a sense if that's kind of the correct type of thinking?

Well, Raj, what we actually said is that we expect to outpace mobile market growth next year, broadening our customer base, which should drive incremental units for us that we didn't have this year. So we're expecting our mobile unit growth to exceed what the overall market is. But the headwind to that is moving from a year where for three quarters of the year, 45% to 50% of the revenue was coming from module solutions, existing the year at 30% in June quarter. Then when you look at fiscal 2012 for an entire year, I would expect that less than 10% that our overall mobile revenue is coming from module application.

Right. So we should, given that --

The price points between a fully integrated end module and a tail end or chip, it depends on the absolute solution, but yes, it's dramatic.

Yes, okay. Yes, because you don't give a sense of what the exact pricing is, so we're estimating, but it would seem that, if you're going to outpace the market, and you think it's going to grow 60%-odd, which again is a very high unit assumption to consider given the fact that the market has probably doubled in 2011, implies that you're going to gain a lot of share. Or you feel that the penetration of touch is going to expand further into the handset market. Those assumptions might be fair, but you're not going to get any benefit from it in 2012 with respect to mobiles. So you're seeing a big drop in ASPs.

Again, Raj, what I would point you is the fact that we recently announced some the new technologies that considerably broadens our capabilities as we move into fiscal year 2012. The outlook that we provided contemplates a range of scenarios for notebooks, tablets and smartphones, and without getting into the puts and takes for what those scenarios can be for those three disparate applications, the outlet that we've given you represents our best view at this point as to how the overall revenue will develop for the year.

Okay. That's helpful. And if you look at the gross margin by segment, it would seem if I look at the gross margin by product line that the mobile handset gross margin must be pushing above the corporate average -- or above that 40% to 45% range in order to get to like 44% overall. Is that a fair assumption?

Yes.

When you look at our margins, right? When you go to modules to tails to chips, gross margin percentage increases, right? When we're selling a chip solution where almost 100% of what your providing is proprietary content, yes, you're going to see highly percentages. Tails a little bit less so, and then modules even less, because there's more third party content. But you are absolutely right, with tails and chips you're going to see higher gross margin percentages at the individual design level.

I want to make sure that the margins for PCs are not really changing all that much from historically, because typically you said that they were kind of similar to handsets in the past at like 40%, 41%. Is that true? So you're going to see, really, like 47%, 48% type gross margin in mobile handsets. Or higher.

We don't expect see a significant change in the gross margin profile for our TouchPad solutions.

Last question for me in terms of the headcount. If I look back, the headcount increased 15% year-over-year from June 2011 to June 2010, and you -- so you've added nearly a hundred -- over a hundred people it seems. I'm just curious with the shift to the chip only solution, are you not seeing a change in the hiring, the type of hiring that you would normally look? Because last time, when we talked before, you had said that you're investing in system engineers and integrators, material scientists to support a module type business model. But it seems there's not really any fundamental shift in your thinking in terms of OpEx. Is that fair, or am I kind of missing something there?

No, we continue to focus on hiring system level engineers. Because, remember, to implement touch, it isn't just a chip, it isn't just a sensor, it isn't just the firmware. It isn't the electronics that allow the sensor and chip to work together. It's the integration of all of those elements into a subsystem solution that operates seamlessly within the host OS. So going forward, even though we're not delivering modules, system level engineering understanding is absolutely critical and important. And that won't change.

All right. Great. Thank you.

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

Hi, thanks very much. Two separate questions, if that's all right. One, Russ, you did in your prepared remarks talk about the CEO search, but I guess I was just wondering if there was any more [to] you can give, I mean, given it's now been three quarterssince Tom Tiernan exited. What -- if you give us any more to it, other than the CEO search is ongoing?

And then totally separate from that, you had -- it's a few quarters in a row now, just talking about the overall PC market. You guys obviously have been seeing the same -- similar weakness over the broader market where consumer notebooks been weaker and corporate has been better, and you did talk about that -- again, in your -- I think Kathy did in the prepared remarks. But I'm curious if you've seen any change there really, or if you're continuing to see a pretty bifurcated market where corporate is good and consumer notebooks weak? Thanks.

As it relates to the CEO search, we realized it's been nine months. But the search isn't being gated by a timeline. It's being driven by finding the right person. I can't say anything beyond that. I mean, once we've found the right candidate, we'll let you know.

As it relates to the notebook market, what you indicated is true. There is bifurcation today in terms of the relative strength of the enterprise market relative to consumer. Consumer demand is still fairly tepid, and enterprise demand has held up on a relative basis.

And that's been the case for a few quarters now. Do you just -- areyou just expecting that to continue to be the case as best guess at this stage? Or is there any reason to think that's changing?

All I can tell you is if you look at forecast we're getting from our customers, and if you look at the industry forecasts that are out there today, people are expecting that in calendar year 2012 notebook growth will resume. The latest numbers for calendar year 2011, depending on who you talk to, is somewhere between low to high single digits. And when you get back to calendar 2012 people are expected to get back to double digit growth. And to get there's I would have to assume there's going to have to be a uptick in consumer demand, too.

Right. Okay, thank you.

Thank you. Our next question comes from the line of Li-Wen Zhang with Pacific Crest. Please go ahead.

Thank you for taking my question. Given that module right now represents less than 10%, as well is the existing fiscal 2012, plus some of your customers push-outs, as well as the your unit -- your expectation of unit growth to out grow overall market, is it fair to assume September quarter for mobile revenue is bottom right now?

We haven't said anything specific about that, Li-Wen, but we do see from a year on year prospective pretty significant drop because of the change in the mobile mix and also those customer dynamics in the first quarter. And as Russ said, we do see -- because of those same kind of trends, we would expect for the first half that our total revenue is going to be down year on year. Beyond that, I don't have any other specific comments on the second quarter of this year versus the September quarter. But we do expect to see mobile -- as we talked about before, mobile units are -- we do expect them to be up in September and then typically December is a stronger quarter.

Okay. Got it. And then my next question is, also due to the impact from your mobile revenue shift -- mix shift, what is your ASP range right now? It's still the same as before?

When we talked about not giving the -- we've given some numbers -- general numbers around ASPs for chips and tails. We said chips are typically $2 or less, tails are somewhere $2 to $3 dollars, and soon a go forward basis you should be looking at those types of ASPs on a mix basis for our mobile based revenue.

Okay, and my last one is, based on your backlog right now, would you please provide a mix among the mobile and thePC? For the [September] quarter?

Yes, in the backlog right now for the September quarter, the mix is move like what we saw in the June quarter, so it's higher percentage PC versus mobile.

Okay, thank you.

Thank you. (Operator Instructions). And our next question come from the line of Ian Ing with Gleacher & Company. Please go ahead.

Yes, thanks for taking my question here. Looks like you have good exposure for China Android smartphones. Could you say that's the same mix of modules, chips and tails as our overall mix? And these OEMs obviously have a reputation of being price aggressive. How is that being managed with your suppliers?

More of our engagements with the Chinese OEMs have been most recent, so generally those tend to be tail and chip engagements rather than modules.

Okay, great.

So I think it's reflective of what we're seeing in the current mix of the rest of the customer base. So some tails, some chips, just depending on OEM presence and design presence.

And are those ASPs for the chips and tails in line with the rest of the chips and tails at other OEMs?

I would say so. Again, they're all -- all of the OEMs, some of the pricing is still dependant upon the individual designs and what the features and performance are that we're offering.

Okay. And then the next question is, there are like one or two OEMs out there largely doing qwerty-based smartphones, with the keypad moving to touch enabled. Are you exposed to that increase in touch adoption there, and can the units offset the mix shift declines [for you]? Is there something playing there?

Are you talking about a specific particular OEM?

Well, there's more than one OEM with qwerty-based smartphones, right? So --

We're definitely, each one of the OEMs in the mobile market -- I mean, some of them have more fully adopted touch within their high end solutions. They're pushing it down. And I think we've talked before about some of the other OEMs, they do not have as broad adoption of touch, but everybody is really trying to push it down further in their product lineup and introduce more SKUs. And we're definitely participating there.

Okay, that's all I had. Thank you.

Thank you. And our final question is a follow-up question from the line of Rob Stone with Cowen and Company. Please go ahead.

Hi, Russ. Just wanted to follow-up on your comment about the flattish revenue, but with higher gross margin you definitely see a bigger contribution to the bottom line. You do expect to be increasing hiring though throughout the year, so that implies a growth in OpEx, and I believe the tax rate is expected to be 20% to 22% versus less than 18% in the fiscal year that just ended. So I just want to clarify. You're suggesting that you will grow a net income even after an increase in expenses and the tax rate?

And then a related question for Kathy is, do you expect to continue buying back stock, and if you could remind us what remains in terms of an authorization? Thank you.

You're right, Rob. So if you look at the guidance that Kathy gave for the current quarter for gross margin, the midpoint at 44%, and compare it to just two quarters ago, gross margins are up over 300 basis points in that period of time. And so if you look at that increase in margins, 300 to 400 basis points over an entire year, you can see the kind of leverage that gives you in your operating model. While we continue to add staff, that gives you a lot of head room in continuing to pull through to operating profit and net income.

Thank you. And that does conclude our Q&A session. I would like to turn it back to management for any closing remarks. Please go ahead.

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

Thank you. Ladies and gentlemen, does that conclude our conference call. Thanks for your participation. You may now disconnect.