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Atheros Communications Inc. (NASDAQ:ATHR)

Q3 2008 Earnings Call

October 27, 2008 5:00 pm ET

Executives

David Allen - Director of IR

Craig Barratt - President and CEO

Jack Lazar - VP of Corporate Development and CFO

Analysts

Gus Richard - Piper Jaffray

Adam Benjamin - Jefferies & Company

Heidi Poon - Thomas Weisel Partners

Quinn Bolton - Needham

Ruben Roy - Pacific Crest Securities

Sanjay Devgan - Morgan Stanley

Dan Morris - Oppenheimer & Company

Stephen Patel - American Technology

Eric Ghernati - Banc of America Securities

Romit Shah - Barclays Capital

Daniel Berenbaum - Cowen and Company

Mark Heller - Merrill Lynch

Jonathan Goldberg - Deutsche Bank

Operator

Good afternoon, and welcome to Atheros Communications' Financial Results Conference Call. [Operator Instructions].

Now, I will turn the meeting over to Mr. David Allen, Director of Investor Relations. Please go ahead. Mr. Allen.

David Allen

Thank you. Good afternoon, everyone, and welcome to the Atheros Communications' third quarter 2008 financial results conference call. Joining me today are Dr. Craig Barratt, President and CEO, and Jack Lazar, our Chief Financial Officer and VP of Corporate Development.

Before we begin, I would like to remind you that various remarks that we make on this call, including those about our projected future financial results, including revenues, expenses, future plans, markets trends, product development, the anticipated benefits of our diversification strategy and our customers, our competitive position, anticipated growth, profitability, market share and leadership positions in various markets constitute forward-looking statements.

These forward-looking statements and all other statements that maybe made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. We refer you to our Annual Report on Form 10-K for the year ended December 31, 2007, and our Form 10-Q for the period quarter ending June 30, 2008, previously filed with the SEC, in particular to the section entitled ''The Risk Factors'' and to other reports that we may file from time-to-time with the SEC for additional information on the factors that could cause actual results to differ materially from our current expectations.

These forward-looking statements speak only as of the date hereof and we disclaim any obligation to update these forward-looking statements. Atheros reports net income and basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis often referred to as pro forma.

Atheros' management believes that non-GAAP information is useful because it can enhance the understanding of the company's ongoing economic performance. The company uses non-GAAP reporting internally to evaluate and manage the company's operations. Atheros has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the company analyzes its own operating results.

A full reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and we ask that you review this information in conjunction with this call. All numbers that are discussed in today's conference call are non-GAAP, unless otherwise noted. In addition to this reconciliation schedule, we have also posted on the Investor Relations section of atheros.com a spreadsheet with supplemental data called "Financial Metrics" for your reference.

Now, I'll turn the call over to Atheros' President and CEO, Dr. Craig Barratt. Craig?

Craig Barratt

Thanks, Dave, and thanks to everyone for joining us today. In the third quarter, our revenue increased 13.6% sequentially to $138.1 million in line with our guidance of 13% to 15% sequential revenue growth. Net income was $23.4 million, or $0.37 per share.

Our gross margin was 49.4% and operating profit was 18% of revenue. Our third quarter revenue, gross margin, operating expenses, and EPS were all in line with or better than our guidance. Jack will discuss the numbers in more detail and provide guidance for the fourth quarter shortly.

The third quarter was another strong quarter for Atheros and our 14th consecutive quarter of revenue growth. Despite growing challenges with the macroeconomic conditions, solid execution enabled Atheros to achieve broad-based growth in each of our three channels: PC, Networking and Consumer.

A key growth driver for Atheros in the third quarter was the continued strong customer adoption of our XSPAN 11n wireless LAN solutions via PC and Networking customers. 11n is happening now. According to recent NPD market research reports, 11n captured 33% unit share of the US retail access point and router markets in September, up from 18% during the same period a year ago.

Atheros is driving global adoption of 11n by shipping multiple generations of our innovative and cost effective XSPAN solutions 11n solutions. 11g technology continues to dominate the rest of wireless LAN market fueled by the growth of value segment PC, networking, and consumer products.

With this in mind, we're excited today to announce the introduction of our new aligned technology family, the industry's most comprehensive portfolio of wireless LAN solutions based on the IEEE802.11n, 1-stream specification.

Our aligned products are targeted specifically at providing an upgrade part for all of the 11g based products in the market today. Align-based solutions provide outstanding performance at exceptional value, delivering throughput levels up to five times greater than that of Legacy 11g.

To effectively double network coverage versus 11g products, align employees optional features of the 11n specification, including Space Time Block Coding and Atheros's patented proprietary signal receive combined technology which provides greater link robustness and reliability.

Moreover, the aligned feature set further demonstrates Atheros's position as the technology leader in the wireless LAN industry. Outside of our core Wireless LAN business, I am encouraged by the continued progress in our mobile Wireless LAN, Ethernet, Bluetooth and GPS design activities. With a broad portfolio of technologies, we are now positioned to deliver even more value to our customers through world-class integrated multi-function solutions.

Despite strong product cycles in our core wireless LAN market and our consumer and mobile technologies, Atheros is not immune to the challenging economic conditions. However, we remain focused on providing our customers with the highest performing products at the right price points.

Indeed, we believe we can continue to accelerate adoption of our new products, gain market share, and emerge even stronger from a competitive standpoint during these difficult economic times.

Let's now look at the channels we serve, PC, networking and consumer, in more detail. Our PC revenue increased 20% sequentially, solid execution capitalizing on our large 11g customer base and our leadership in providing single chip WLAN solutions, enabled us to increase our market share and accelerate the adoption of 11n technology in mainstream high volume PC platforms.

Atheros's 11g technology remains popular in the value-oriented PC segment, particularly in the emerging notebook segment. According to a recent Gartner report, a large portion of the 15% year-over-year PC unit growth in the third quarter was due to strong demand for lower priced notebooks. Our widely adopted AR2425 11g single-chip PCI Express Solution sold well into this environment, and remained the most significant contributor to our PC business.

Our aligned products provide an ideal upgrade part for our large customer base in Legacy 11g. The AR9285 introduced today will enable our customers to enhance the value segment of their PC product portfolios, with a significant improvement in performance over Legacy 11g at competitive prices.

Unit shipments of our 2-stream single-chip AR9280 and AR9281 XSPAN products more than tripled sequentially in the third quarter. We continue to enhance our XSPAN family of products and we are already sampling new generation XSPAN solutions.

In Ethernet, our PC customer are benefiting from the further expansion of our Ethernet product line. Atheros recently delivered our third generation of gigabit and 10100 controller solutions. These products incorporate new industry-leading power saving features to substantially enhance battery life and also lower the bill of materials by integrating the switching regulator and nonvolatile memory.

Atheros's already secured a number of design wins for these new solutions with tier-1 PC customers. We've now successfully penetrated all 12 of the top PC OEMs by offering a diverse family of wireless LAN and Ethernet products, working closely with our PC customers continues to be an important part of our strategy as we move into 2009 and beyond.

Revenue from our networking channel which includes the retail, carrier and enterprise end markets was once again up sequentially in the third quarter. This channel was driven by the strength of our carrier customers and in emerging geographies where retail demand of value oriented wireless LAN router solutions continue to grow.

With a comprehensive and cost-effective set of router technologies including wireless LAN, network processing and Ethernet switching, we have the necessary technologies to support our customer's full range of product needs.

Today, we also announced our new AR9002 AP 1-stream router solution based on our aligned technology, which features the AR7240 and newest network processor SoC incorporating our power efficient ETHOS and 100 Ethernet switching technology

This router represents a compelling upgrade part for existing 11g and 11g PLUS products. The AR7240 SoC can also be combined with either Atheros' XSPAN 11n or Align family of single-stream wireless LAN solutions for highly integrated and cost-effective routers.

Customer feedback for this product has been very encouraging and we have already secured a number of design wins for this platform, which enables superior performance at the industry's most competitive price points.

Complimenting the Align family's performance and value offerings, our premium XSPAN-based portfolio continues to push the envelope of performance and innovation. For example, D-Link's DIR-855 and DIR-825 products, based on our 11n XSPAN, dual-band and dual-concurrent technology harness the 2.4 and 5 gigahertz band simultaneously to maximize throughput, range and overall user experience.

We saw strength in the third quarter from our carrier customers and we continue to gain share in this market. Our carrier customers have embraced our industry-leading 11g solutions and more recently our single-chip XSPAN 11n solutions and ETHOS family of Ethernet switches.

Our new Align based USB solution; the AR9271 also introduced today will enable carriers to enhance the performance of value-priced gateways with 1-stream 11n class performance. This solution will also be ideal for home consumer electronics customers, wishing to add cost-effective wireless capabilities to products such as set-top boxes, printers and gaming consoles.

I am also pleased with the progress we're making with our Ethernet switching products, as part of that platform strategy. Our 10/100 switching solutions are in volume production with tier-1 OEMs such as AVM, Buffalo, D-Link and NETGEAR.

Our new AR8316 gigabit switches now in volume production and we are very encouraged with both the design wins and the new opportunities for this important addition to our Ethernet switch family.

Let's turn to the consumer business, which includes our ROCm family, wireless LAN, GPS and Bluetooth mobile solutions. ROCm products are incorporated into a wide variety of consumer products, including mobile phones, gaming devices, digital picture frames, media players, navigation devices, cameras and a host of other consumer products.

The largest contributor to our consumer revenue is our ROCm mobile wireless LAN family of products, which is used in a variety of mobiles and consumer electronics products. Simple exciting new products incorporating Atheros' ROCm mobile wireless LAN technology and now available in the market, including HP's new Wi-Fi enabled iPAQ Data Messenger and iPAQ Voice Messenger Windows Mobile-based 3G handsets.

Our partnership with QUALCOMM continues to be an important one for Atheros. Atheros continues to deliver innovative new technology and cost leadership products to provide our mutual customers with world-class solutions.

Additionally, we began the volume ramp for a gaming customer who is incorporating our ROCm mobile wireless LAN solution, as part of an exciting new product offering and increasing number of consumer electronics products, featuring our wireless LAN solutions are hitting the market, including the new C4580 value-oriented color printer from HP.

We're also engaged in design and development activities with a wide variety of exciting consumer products, including PMPs, PNDs, digital picture frames, printers and we are optimistic about the revenue growth we will see from these products over the upcoming quarters.

In GPS, the recent introduction of AR1511 in combination with our latest ORION 3.0 software has been very well received by PND, cellular, PC and consumer electronics customers. This coupling of state-of-the-art assisted GPS silicon and software results in significant improvements in time-to-first-fix reacquisition times and positional accuracy.

The investments we've made over the past three years in developing our mobile solutions for our consumer channel are enabling us to address a [tam] that will continue to grow significantly over the next few years.

As we announced in September, Amir Faintuch joined Atheros to lead our Mobile Wireless Business Unit. Amir has over 15 years of semiconductor, communications and software experience, most recently in the Mobile Connectivity Solutions Group at Texas Instruments.

Amir was instrumental in leading TI's, wireless LAN, Bluetooth, FM and GPS businesses and is exactly the right experience and industry knowledge to help bring Atheros's ROCm connectivity family to the next level and beyond.

Also during the third quarter, we were named to Fortune 100 fastest growing companies for 2008, ranking 19th on the list. I would like to extend my congratulations to our employees and my thanks to our customers for helping Atheros achieve this distinction.

Despite the current challenging economic environment, we believe ongoing product cycles and our focus on both technology and cost leadership, combined with our diversification strategy will enable us to continue gaining share in the markets we serve.

Nonetheless, we are approaching the immediate term with the caution called for by the current macro climate and we are closely monitoring and limiting our discretionary expenses, as we head into these more difficult times.

Jack will now provide more details of our third quarter performance and our fourth quarter guidance. Jack?

Jack Lazar

Thank you, Craig. Thanks all of you for joining us today. First, I'll outline our financial results for the third quarter ended September 30th and then I'll provide our fourth quarter guidance.

Although, the general economy began to slow down in Q3, and the widespread credit crisis created uncertainty during the latter part of the quarter, strong product cycle and marker share gains enabled us to once again achieve, and in the case of EPS to beat, the financial guidance we provided for the third quarter.

As a reminder, our Q3 guidance was for sequential revenue growth of 13% to 15%; gross margin between 48.5% and 49.5%; operating expenses between $43.5 million and $45 million; and EPS of $0.35 to $0.36 per diluted share.

Revenue was a record $138.1 million, up $16.5 million, or 14% sequentially from the $121.5 million recorded in the second quarter. Q3 marks our 14th consecutive quarter of revenue growth and our sixth consecutive quarter of revenue over $100 million.

Revenue in the third quarter increased 30% compared with the $106.3 million recorded in the prior year comparable quarter. A particular note is that we've now shipped almost $200 million of 11n products since we first introduced our XSPAN solutions in 2006.

In Q3, our AR9280 and 9281 XSPAN family of single-chip 11n solutions became the fastest ramping products in the history of Atheros.

Based on the product mix data, the breakdown of revenue for our wireless LAN chipsets was as follows: 11a/g was 11%, 11g was 60%, and 11n came in at 29%. 11n revenue increased almost 50% sequentially and was driven by strong adoption of our single-chip 11 n solutions by PC OEMs and to a lesser extent our carrier customers.

11g increased over 10% as a result of strong shipments to retail and carrier customers. 11a/g revenue was down in Q3, but in line with our expectations going into the quarter. The percentage breakdown of revenue by channel based on the data supplied by our ODMs was as follows: Networking was 54%, PC OEM was 39% and consumer was 7%. Networking revenue increased 8% or $5.7 million, sequentially, to record highs in terms of both revenue and units. We experienced strong XSPAN 11n shipments to our carrier customers, as well as, record 11g shipments to our retail customers. Revenue from PC OEMs also reached record highs increasing 20% or $9.1 million, sequentially. As strong adoption of our 11n products was partially offset by a softness in Ethernet shipments.

Consumer channel revenue was driven by increased shipments of our ROCm mobile wireless LAN products, as a variety of design wins began ramping. In Q3, Hon-Hai Precision industry was our only 10% customer.

Third quarter gross margin was 49.4%. ASP reductions for the quarter were in line with our expectations going into Q3. As we discussed in our July earnings call, our wireless LAN focus is to drive the customer transition from 11g to 11n for both the high and low end networking and PC products, while using our cost effective solutions to increase our wireless LAN market share. This strategy worked particularly well in Q3 as we delivered an 11% increase in gross profit dollars, while delivering gross margin of 49.4% which was at the high end of our guided range.

Our newer 11n products including our recently announced Align family of single-stream 11n solutions will provide us increased flexibility and executing on our market share strategy.

Total operating expenses were $43.9 million or 6% increase from Q2, and towards the low end of our guidance. The increase was primarily due to increased costs associated with additional headcount growth, as well as, increased tapeout-related expenses.

Operating profit in the quarter, up 21% sequentially to $24.4 million, was 18% of revenue, and within our long-term model range of 17% to 19%. Compared with Q3 of 2007, operating income increased 35%. Interest income increased to $2.4 million in Q3, due primarily to increased cash balances. Net income was $23.4 million or earnings of $0.37 per diluted share for the quarter, compared with net income of $19.3 million or earnings of $0.31 per diluted share in the second quarter and was above our guided range of $0.35 to $0.36.

Average fully-diluted shares outstanding were $62.6 million in Q3 and $62.1 million in Q2. GAAP net income for the third quarter was $10.1 million or $0.16 per diluted share. This compares with GAAP net income of $10.1 million or $0.16 per diluted share in the second quarter, and $9.7 million or $0.16 per diluted share in Q3 of 2007.

At September 30th, total cash, cash equivalents and short-term marketable securities were $274.1 million, up $21.5 million from June 30th. Excluded from this balance are $19.7 million of auction-rate securities. As we discussed in our prior conference calls, in our last 10-K filed in February and in our 10-Q filed in July, these investments have been negatively impacted by the uncertainties in the credit markets and their exposure to the financial condition of bond insurance companies. While these securities continue to pay interest on-time and at their maximum rate, in Q3 their estimated fair value declined further and as a result, we recorded an impairment charge of $4.4 million against GAAP earnings.

We continue to classify these securities as long-term investments, as of September 30th. In future periods, the estimated fair value of auction-rate securities could decline further based on market conditions, which could result in additional impairment charges which may be substantial. While our overall cash position and cash flow remained strong, we continue to evaluate all potential means to remedy the situation.

Turning to the remainder of the balance sheet, DSOs were 59 days in Q3 and increased from 56 days in Q2, and above our target range of 45 to 55 days. Inventory turns for the quarter were 5.4 times compared with 5.2 times in Q2, while days of inventory decreased from 69 to 67. Inventory turns were in the middle of our target range of five to six times. The company continues to have no debt. Total liabilities at the end of Q3 were $153 million.

During the quarter, the third quarter of 2008 our capital expenditures and depreciation were $1.6 million and $1.7 million, respectively. Overall, our cash flow was strong once again in Q3, and we generated $20.7 million of cash from operations. As of September 30th, we had 1,040 full-time employees, up 88 from 952 at the end of Q2.

I'll now move on to our guidance for the fourth quarter. While Q3 was particularly good for Atheros, we like others in the semiconductor industry face strong economic headwinds in the upcoming quarter, and we are cautious in our outlook. Accordingly, we expect revenue from our networking channel to decline sequentially with our retail customers showing the biggest weakness this quarter.

We anticipate our PC OEM revenue will be relatively flat. We expect our consumer business to be very strong and represent over 10% of our overall revenue in Q4, driven by the ramp of our mobile wireless LAN products and to a lesser extent revenue from our other mobile connectivity solutions. Based on these trends, we currently anticipate revenue to be in the range of sequentially flat-to-down 5%.

We expect our gross margins to be in the range of 49% to 50% and once again above the long-term model. We will continue to invest in the people, product tapeouts and infrastructure necessary to support our continued long-term growth and entry into new markets. But we will do so with moderation that is appropriate for these uncertain times.

In the fourth quarter, we anticipate operating expenses will be sequentially flat, plus or minus 1%. R&D expense is anticipated to be slightly up in dollars, while SG&A is expected to decline. Our estimated pro forma tax rate for Q4 will be approximately the same as Q3. However, we anticipate receiving a $2.8 million benefit associated with the recently passed renewal of the R&D tax credit, which will lower our Q4 tax expense to between 3% and 5%.

For the quarter, we anticipate EPS to be in a range of $0.36 to $0.40 based on fully diluted shares outstanding of approximately $63 million. Q3 was our strongest quarter to-date, with record revenue and operating profit. We remained focused on executing in our core wireless LAN business, while also gaining market share in the mobile wireless LAN, Ethernet, Bluetooth, and GPS markets that are driving our diversification strategy.

Our expected strong growth in mobile wireless LAN revenue during a difficult fourth quarter will provide further evidence that our strategic direction is working. As we navigate through the current period of economic uncertainty, we remain confident that our product portfolio and financial strength will enable us to gain market share and emerge even stronger.

With that let me hand it back over to Craig.

Craig Barratt

Thanks, Jack. Operator, we are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Gus Richard of Piper Jaffray.

Gus Richard - Piper Jaffray

Hi. Thanks for taking my question. Could you talk about sort of the balancing the mobile side in fourth quarter? How much would be cell phone versus non-cell phone?

Craig Barratt

Hi, Gus, this is Craig. We actually don't break it out by subsegment, but I think we are seeing quite good growth in several of those end product categories.

Gus Richard - Piper Jaffray

Okay. And then, in terms of the ramp-up and how do you see the one by two going this quarter and next and how do you see the cost downs for that product phasing in over the next couple quarters?

Craig Barratt

You point out there are many different 11n configurations and with the line, of course, we are working to create a new category which will really be the upgrade path for all of the Legacy 11g. We are focused on providing performance improvements and cost downs for basically all of the other important 11n configurations.

For that I can just say, stay tuned; we have products in the pipeline that are sampling with customers that will represent significant improvements in price performance, not just for the one by one that we announced today, but also for additional 11n configurations.

Jack Lazar

Our focus, historically, has been, as you know, Gus, both on technology, leadership which I think Align certainly qualifies in that area, but also in costs. And the combination of the two has worked to our advantage. And in times when the economic times are little bit more difficult, that focus on value actually pays an even bigger dividend.

Craig Barratt

We have a dual-prong strategy for the one by two you mentioned. We think a number of the one by two customers are very good candidates to migrate to one by one, not just the 11g customers, but the second prong of the strategy is a roadmap, as I said we are already sampling new products not yet announced that will represent significant improvements in price performance for those categories.

Gus Richard - Piper Jaffray

Okay. And these should phasing in Q1 I'm assuming?

Craig Barratt

Yes. We would expect the products we've announced to be ramping, starting at the end of this quarter and certainly in Q1.

Gus Richard - Piper Jaffray

Okay. Thanks so much.

Craig Barratt

Thanks, Gus.

Operator

Our next question comes from Adam Benjamin of Jefferies & Company.

Adam Benjamin - Jefferies & Company

Thanks. First on the g business, did that grow on a unit and revenue basis in September, Jack?

Jack Lazar

On a dollar basis, it was up. It was up relatively significantly. And on a unit basis, it was clearly up. We don't get into the level of detail on units anymore.

Adam Benjamin - Jefferies & Company

Okay. On the expectation for Q4 for that g business as a whole, excluding the consumer piece?

Jack Lazar

Well, we look at g as a whole. So, it's hard for me to exclude any consumer piece. I think we'll continue to see strength with the 2425 at PC OEMs. We, of course, are trying to transition folks from the 2425 into our Align products and our 11n products. Overall, we certainly don't see a big drop in demand for 11g as we go forward. And, in fact, you would think that in more trying economic times that there actually would be a flight to value.

Adam Benjamin - Jefferies & Company

Okay. Then as it relates to the end pricing, you said it was in line with your expectations. In the June quarter, you saw a big step down partly due to mix with the one by two coming in. I assume that kind of stabilize, given the mix shift happened last quarter as opposed to the September quarter. Can you talk a little bit about that pricing environment going forward and the mix and how that plays out, for the next couple of quarters here?

Jack Lazar

Well, yes. So, let me be clear. We just started really shipping the one by two products in this quarter. At the end of last quarter and then we shipped in a lot more volume in Q3. So, really you saw the impact of it in this quarter. The ASPs did come down and we're pretty much right in the range of what we had expected.

Overall wireless LAN ASPs internally hit very, very close to what we had forecasted going into the quarter. So I don't think we saw any real surprises there. One thing to point out too, is that as we look into the upcoming quarter here, we did guide our margins to 49% to 50%, which also says that there's some stability in the ASPs too. So I think the environment is not so much one that we're seeing a significant or unexpected decrease in ASPs.

Craig Barratt

I should mention, Adam, that there are two prongs to ASPs and 11ns. Since there are many different product configurations, the major contributor to the overall ASP is actually the mix. We, clearly, have a whole range of solutions over quite a broad range of price points and the growth in one by two 11n in the third quarter and the future growth of one by one, clearly, they are at lower price points.

And so, that will affect the blended ASP. The same product ASP is not changing nearly as much as the overall one. We're really trying to drive, share and unit growth and, of course, with the commensurate revenue growth as well.

Adam Benjamin - Jefferies & Company

That gets me to your Align product. If you look out over next year, should we be thinking about that as an upgrade from your g customers? I know some will not upgrade to n. So, should we be thinking about those customers moving to that Align product and kind of on parity with the current g pricing and then how does that play into the mix for gross margin, for n, as well?

Craig Barratt

Well, we're certainly not saying parity on pricing. But I do want to point out that we want to position the product from a performance point of view and over time from a pricing point of view to be very compelling for our customers that are on 11g platforms today. Another aspect that we didn't mention which I think is very important is today the g market is actually fragmented.

We have our Super G technology, sort of a premium that proprietary g technology and what Align does is collapses all of that into a fully standards based product with some additional features that Atheros has added using its technology. So, certainly your thesis is correct. We certainly do expect 11g to migrate substantially over the coming years to 11n using Align. And I think we can do that with the price performance that makes it compelling for the customer and also a good business for us.

Adam Benjamin - Jefferies & Company

Okay. One last question on the PC guidance. Jack, you indicated that could be flattish. Obviously, the PC market has weakened. I know that you have a tier 1 OEM that's ramping, but may have pushed to the March quarter. Can you go into a little bit more color in terms of the puts and takes in terms of the flattish guidance for the December quarter?

Jack Lazar

Yes, it's actually pretty simple, it is the netbooks, all right? So the netbooks are and frankly just the whole low-end value oriented segment of the market is an area where Atheros has done very well. And whether it's in products from ASUS or Atheros, some of the many other guys out there that are pushing these type of value-oriented PCs. We've done particularly well with our wireless LAN attached and in many cases actually getting Ethernet in there too. So I think that's really what is helping us. As we would agree, I mean, the PC market is definitely more challenged in Q4. We just happen to be in the right place.

Adam Benjamin - Jefferies & Company

Got you. And that's all I have, guys. Good job.

Craig Barratt

Hey, thanks, Adam.

Operator

Thank you. Our next question comes from Heidi Poon of Thomas Weisel Partners.

Heidi Poon - Thomas Weisel Partners

Thanks, guys. I want to get a little more color on the gross margin. So, can we assume that even for the mobile wireless LAN products that you will be ramping in Q4, the gross margin profile is on par with the rest of the products?

Jack Lazar

We don't get to that level of granularity, Heidi, I apologize. But, we are seeing a significant increase in our consumer business driven by mobile wireless LAN in the fourth quarter and we are not expecting much of a change from where our gross margins are at right now.

Heidi Poon - Thomas Weisel Partners

Got you. Are there any drivers of the better gross margins on a sequential basis one could take from in terms of mix going into next year? And what the impact it would be for next year's gross margin?

Jack Lazar

Our 11g products are relatively stable and pretty good gross margin. So to the extent that we're shipping more 11g that's pretty good. Obviously, the high-end 11n products are going do extremely well on the gross margin side and as the Align product start to come into the marketplace they actually will be at a relatively attractive gross margin profile.

I think that we are between that and some of the cost downs that we are doing in some of our XSPAN products, we're actually in a pretty good position here. And if things start to have slow down a bit, it's a time in which we want to sit down with our suppliers and make sure that we are best arm to go out there and address the marketplace.

Heidi Poon - Thomas Weisel Partners

Great. Secondly, can you give us some color on whether there has been any market share shift in both the retail and PC segment for you that is beyond expectations?

Craig Barratt

We have very aggressive expectations for our business. I think we are being really delivering very nicely along our expectations through the year. Clearly, we've had targets about penetrating more of the PC customer base and I think we are getting some nice traction there. We certainly have aggressive targets of expanding our Ethernet reach, for example, in PCs and we have some very nice wins there among tier 1 players. I think, overall, we've made excellent progress and I think generally in line with some very aggressive expectations.

Jack Lazar

Well, I think when we look at our product portfolio for the upcoming 6 to 12 months, we feel like we're in a pretty competitive position, one where if there's a good opportunity out there, we're going to compete pretty hard for it and we think our chances are relatively good of ending up on the positive side of those competitive efforts.

Heidi Poon - Thomas Weisel Partners

Great, thanks. Strong execution.

Jack Lazar

Thanks.

Craig Barratt

Thanks, Heidi.

Operator

Our next question comes from Quinn Bolton of Needham.

Quinn Bolton - Needham

Hi. First for Craig. Can you just talk about as you introduced the Align product, what the threats are to potentially cannibalizing one by two or do you see various segments where you can bring Align in at a lower price point than the one by two product can still carry good gross margins for both product lines?

Craig Barratt

Well. It's really not a threat, it is very much opportunity. As you know, we are very strong in low-end 11g and as we reflected in our previous quarters call, we deliberately were aggressive with one by two, as well. I think that positions us since we have those sockets today with other products to transition those customers on a selective basis, not necessarily globally to our new Align products and that creates a whole new cycle of performance differentiation and I think some really nice cost leadership as well.

So really, it's a matter of seizing opportunity rather than reacting to a threat. One by two customers, of course, can stay with our current generation products. And as Jack mentioned, I think we have some very nice roadmap products, that some of which are sampling now in our XSPAN family, which will represent nice transitions for those customers too. They can choose to go up in performance or they can choose to come down in cost. So they have a very nice set of options that we're going to offer them.

Quinn Bolton - Needham

But for the lower end, and its 11g existing customers as they look to upgrade to and do you think they will pay a higher price for the better range offered by the Align product? Or do you think ultimately that they wait until the Align pricing comes down to an equivalent basis for what they are paying for g today?

Jack Lazar

Well since we have the socket today and we have the right product for them in the future, I think we have some discretion. But I think, in general, our interest is in driving at Ford because it is very important that we establish an ecosystem here for Align branded products. We really want a rich set of tier-1 retail players and PC OEMs to be offering this technology and capability. So, I think our goal is the sooner we can drive this transition, I think better in terms of creating this ecosystem.

Quinn Bolton - Needham

Okay. Is there anything you can say about the enterprise and the carrier side of the networking business? I know you said that retail would be weak, but any comments on those other two segments?

Jack Lazar

Well, in the most recent quarter, I know our carrier was actually probably one of the strongest, at least percentage wise it was probably the strongest area of our business. Enterprise was actually a bit weaker than carrier. In fact, enterprise in and of itself was actually down a bit in the most recent quarter.

Going forward into this upcoming quarter, carrier will not be quite as strong as it was in Q3. Enterprise, we're expecting to continue to be relatively weak as we go into Q4.

Quinn Bolton - Needham

Okay. Great. Thanks, Craig. Thanks, Jack.

Jack Lazar

Thanks, Quinn.

Craig Barratt

Thanks, Quinn.

Operator

Our next question comes from Ruben Roy of Pacific Crest Securities.

Ruben Roy - Pacific Crest Securities

Hi. Thank you. I had a follow-up question with respect to a previous question on cannibalization with the Align product line. Craig, I was wondering when you look at the Align products and you look at the ROCm and then some of your consumer applications, do you think eventually as Align pricing comes down that you might see some applications on the consumers side move towards the

Align product line, maybe outside of handset and the gaming platforms?

Craig Barratt

Absolutely. I think there are some real opportunities there in consumer products where we actually have some interesting engagements with customers there already. And so absolutely there are opportunities. I think the timing for the adoption of this technology really does vary by sub-segment. I think the more mobile and hand-held products will likely stay with 11g for longer, but I think there are other products where once you get to right price performance point, you can really enable the whole set of connected consumer devices and that's what Align is really going to serve in the shorter term.

Ruben Roy - Pacific Crest Securities

Okay. Thanks and then on the Bluetooth products, can you give us an update of how you are doing on the PC side with 3011, any traction there? Any revenues coming up for the next several quarters?

Craig Barratt

Yes, the PC area for Bluetooth is certainly a very important focus for us, especially with the advent of the Bluetooth 3.0 spec. We talked about this a bit in the last call, which really provides for Wi-Fi to be the preferred alternative [Mac 5] for Bluetooth.

And so, we see Bluetooth and Wi-Fi attach rates in combination really being pretty intriguing in conversations with some key customers in Asia. We see that once that combination can be proven to work and once the incremental price gets below a certain threshold, the adoption in the saturated Bluetooth will actually accelerate quite quickly. So I think Bluetooth in PCs is a very important vehicle for us, both offensively and to some extent defensively.

Ruben Roy - Pacific Crest Securities

Okay. On the DSOs, Jack, anything going on there? When do you expect those to recover to your target range?

Jack Lazar

Yeah. It's not a collection issue. It was more an indication that the quarter was a little more back-end loaded than the previous quarter. So, we would hope that that would obviously correct itself as we move into the fourth quarter, but what I worry most about, of course, is the collections and that's not an issue at all.

Ruben Roy - Pacific Crest Securities

Great. Thanks a lot.

Craig Barratt

Thank, Ruben.

Operator

Our next question comes from Sanjay Devgan of Morgan Stanley

Sanjay Devgan - Morgan Stanley

Hey. Thanks for taking my question. I have two questions. The first is a follow-up on the last question, on the DSOs. Can you give a sense of the aging on the DSOs like approximately what percent are over 30 days or anything you can give us quantitatively?

Jack Lazar

Yeah, so we're not going to go into that level of detail, but I can tell you that if our DSOs were reported on a specific look back basis, it would be a very, very efficient DSO. So obviously, it's all really related to the backend loaded nature of this last quarter.

Sanjay Devgan - Morgan Stanley

Okay, great. And a question for Craig. You have done a great job in terms of kind of staying ahead of the competition curve with respect to your competitors. One of your major competitors is talking about the come to market with the single-chip end solution fairly quickly.

And I was just wondering if you can give us a sense of the integration pathway or some of the things we should look forward to going forward in terms of the some of the features you plan to enhance or if you can give a sense of the roadmap on your 11n solutions?

Craig Barratt

Right. We have a pretty compelling history in terms of integration. And I should point out, of course, that we are not the company that is using process technology as our primary differentiator or competitive advantage. I mean, clearly, those process technologies have a significant burden in terms of development time and costs.

What we have found in the last quarter is as we have seen some of these other products first come to market. It is actually being quite interesting to look at the competitive ratio of die sizes of these products. So, our current generation single-chip 11n two by two product in 0.13, actually has a die size which is smaller than one of our competitors single-chip two by two 65-nanometer product.

And I think that clearly serves to give us a significant cost advantage. And, of course, going forward just like we've done with our 11g products, we will continue to integrate more of the rest of bill-of-materials. We really take a total solution cost view when we device our product, so, just as we've done with our Align products, integrating the power amplify, integrating the L&A, integrating the antenna switch. You should expect that our 11n roadmap will contain more integration of that kind to increase the percentage of dollar content that's our silicon and to make the total solution cost more and more competitive for our customers. We have done it before, and we will continue to do it in future.

Sanjay Devgan - Morgan Stanley

Thanks so much for your answer.

Craig Barratt

Thanks, Sanjay.

Operator

Thank you. Our next question comes from Dan Morris of Oppenheimer & Company

Dan Morris - Oppenheimer & Company

Hi. I just had a question on the consumer segment, which you had indicated would be up pretty strongly in this next quarter. Is that mainly driven by the gaming ramp?

Jack Lazar

Yeah. It is mostly driven by mobile wireless LAN. Obviously, in mobile wireless LAN there is a combination of both cell phones and consumer electronics products with gaming being the biggest part of the consumer electronics products. We did pull together just under 10 new design wins for cellular handsets in the last quarter, which is clearly positive. We are still getting very good momentum on the handset side, but the initiation of some of the gaming products certainly does help in this upcoming quarter.

Dan Morris - Oppenheimer & Company

Okay. And with regards to that type of gaming ramp, how many quarters might it extend into?

Jack Lazar

We've invested a lot of time and efforts in supporting these customers and we expect that there are certainly long-term projects that will provide a significant return. We're not going to get into how long it's going to last because that's frankly up to the OEM, as opposed to us. But, what we can say is the relationship is strong and I think that they're bringing out a product to the marketplace that is pretty attractive.

Dan Morris - Oppenheimer & Company

Okay. And a question on your inventories. Can you talk about what your expectations are going forward there?

Jack Lazar

Our expectations would be that we would get the actual turns back up in this upcoming quarter. Obviously, it will be somewhat dependent on the activity that happens if we get the mix right. But, overall, we're at 5.4 turns, or 67 days. Those aren't areas that really bother us. We'd like to do better than that. We've run our company closer to six times turns in the past and we would like to get back up there. A lot of it just gets down to forecasting the right products at the right time, and we're taking a lot of steps to improve that over the next couple of quarters.

Dan Morris - Oppenheimer & Company

Great. Thank you.

Jack Lazar

Thanks, Dan.

Craig Barratt

Thanks, Dan.

Operator

Thank you. Our next question comes from Mark McKechnie of American Research.

David Allen

Are you there, Mark?

Operator

Mark, your line is open. Please check your mute button. Please pick up your handset. We will go ahead and move on to the next question. It comes from Stephen Patel of American Technology.

Stephen Patel - American Technology

This is Stephen actually for Mark McKechnie. He had drop-off. Can you give us a sense of how much of the growth in the PC channel came from share gains at new customers versus ramps that existing customers that you have?

Craig Barratt

I think it is hard to say. I would say probably the one of the biggest drivers actually was the mix towards netbooks and the increased adoption of 11n. So I think it was more related to the product categories, not so much significant contributors from new customers. As we mentioned in our prepared remarks, of course, we do have share gains, as well. But I think the primary effects were the mix of the type of products.

Stephen Patel - American Technology

Okay. And then a follow-up question. What can we expect for the tax-rate for 2009?

Craig Barratt

Sorry. Can you repeat that question?

Stephen Patel - American Technology

What should we be thinking about for the full year 2009 tax-rate?

Jack Lazar

Tax rate? Okay, so, as we look into next year, we really don't know until we get closer. I think that if you use a tax-rate for modeling purposes, that's close to what we had this year, say around 12%. That's probably a pretty reasonable rate.

Stephen Patel - American Technology

Okay. Thank you.

Jack Lazar

Thanks.

Craig Barratt

Thanks.

Operator

Our next question comes from Eric Ghernati of Bank of America Securities.

Eric Ghernati - Bank of America Securities

Hi, thanks for taking my question. I have three questions, please. First one, Jack last time on the conference call you highlighted how your Q3 growth was going to be significantly driven by growth from the retail segment. Can you just walk us through what's happened there and give us a sense of relative performance for the retail segment, please? Thank you.

Jack Lazar

Sure, on the retail side, we actually had a pretty good quarter from a retail perspective. And it was in line with what we expected going into the quarter. We did start to see a slowdown in demand with retail as we moved towards the latter part of the quarter and that's obviously playing into our Q4 guidance.

In addition, there is a particular customer who has slowed down pretty significantly and that too affects the retail guidance. So, when we look at retail for the upcoming quarter, it actually is the weakest area of the business. It's clearly an overall demand issue. We're not losing share. So I think we're comfortable with that. But the demand has to be there and we're hoping that it picks up as we move into Q1.

Eric Ghernati - Banc of America Securities

Okay. My follow-up is with respect to the Ethernet business, you said [decided] how it was weak, but can you reconcile how the Ethernet business performed in lights of your strong performance and your notebook business when particularly netbooks where I thought you had like pretty good [detach] rates for Ethernet and as well as how do your retail business performed in the quarter since you were banking on lot of design wins for Ethernet?

Craig Barratt

I think the footprint of our Ethernet business in PCs is actually still somewhat different to our footprint of wireless LAN. Ethernet really grew up more on the motherboard side of the business. And so while we're very focused on increasing that overlap and getting Ethernet wins in netbooks and in laptops. That is not yet complete.

And similarly I think the switch business, we're seeing some nice growth there, but that's still off a more modest base. So I think the business is definitely on track with our expectations. I think the packet is a little bit weak in Q3 relates more to the motherboard side of the business.

Jack Lazar

Yeah, Eric, on netbooks while we do have some nice design wins with our wireless LAN, we don’t have all of them, right. I mean there are opportunities for us to increase our share in some of these netbooks and we're doing everything we can to clearly make that happen. So, I think this is an evolving business for us. We just happen to have a little bit of slowdown in this most recent quarter.

Eric Ghernati - Banc of America Securities

Just to clarify, was your retail business up year-over-year?

Jack Lazar

Yeah, I would assume it had to be up year-over-year. I was talking about it maybe.

Eric Ghernati - Banc of America Securities

I just want to make sure. And then finally, one last question with respect to OpEx, given the environments, you think you are ready to operate at these levels for beyond the December quarter? How do you think about budgeting going forward?

Jack Lazar

So I think one thing we've proven overtime is we're pretty practical group here. We try not to spend money that we don't have. And we take a pretty rational outlook as to the operating expenses that we're going to invest.

I would point out that we do have some pretty good things happening here as far as product cycles that we think are actually somewhat independent of the overall economy. And that's one of the reasons why you are seeing us do a little better as far as our outlook for the upcoming quarter as opposed to some of our competitors.

We are prepared to live within our reality, I would say it that way. Its sound like we're doing a lot of headcount hiring right now. We're very realistic about our revenue to the extent that that changes then our expense base will change. I think that's the approach we've always taken. You see it again this quarter where we've guided expenses to be essentially flat. And I think that's a realistic outlook on what is appropriate to spend at this point given based on the demand we have.

Eric Ghernati - Banc of America Securities

Thank you very much.

Craig Barratt

Thanks, Eric.

Operator

Our next question comes from Romit Shah of Barclays Capital.

Romit Shah - Barclays Capital

Well done. Jack, on the product cycles that you think are independent of the economy. Can you just remind us what the top three might be?

Jack Lazar

Well, I mean there's a couple. Obviously, we think that to the extent that the transition for 11n is happening whether the overall demand is up or down, you are going to see increases in 11n. So for example, we expect the 11n to be up next quarter, okay.

Secondarily, there are certain product cycles, such as the gaming SKUs that are really independent of what's going on in the overall economy. Its just starting to ramp and that's going to play out for quite a while.

And so, the third one I would point to is just individual areas, particularly in some of the diversification markets that we are going after, where we gain market share, right. It's all independent of what's going on in the overall economy because, frankly, we're working off a small base.

So I think those are probably the three key areas that we can really benefit from. Are we exposed in some of the traditional core wireless LAN? Sure. But I think we've plenty of opportunities to actually continue growing this company through the evolution of things, like the netbooks and the value-oriented PCs that are clearly making a dent on the marketplace.

Romit Shah - Barclays Capital

Thanks for that. Craig, could you just elaborate on the company's strategy with respect to acquisition? TI announced that they have some wireless assets for sale? It seemed like an opportunity to buy some revenues at $0.50 on the dollar also diversify the revenue stream. I am just wondering if you could just comment on those assets and the company's philosophy on acquisitions, particularly in this environment.

Craig Barratt

Sure. We continue to look at quite a range of acquisitions. We've done so for the last several years. But I'd say our purchase always been very, very cautious. We set the bar very high in terms of the fit with the strategy of the company, clearly, the financial metrics and culture and the number of things have to be very, very good fits for us.

So, I would suggest going forward that these challenging economic times do perhaps present more opportunities to us on a relative basis that could be favorable, but we're not going to do change or lure our standards in terms of the type of fit that we really need to achieve to make an acquisition successful.

So, certainly, acquisitions as before continue to be one of the strategies for growing our business. But I would suggest, don't expect us to just casually seize opportunities just because they come across our table. I think we'll continue to apply the same discipline we have in the past.

Romit Shah - Barclays Capital

Any specific thoughts on the TI wireless business?

Craig Barratt

Well, the cellular baseband area, if that's the one you're referring to is really not of particular interest of ours. I think it's really the sport of kings. And our strategy is very much there as you know, is to partner with companies who are in that space, rather than to take on that complexity and competitive challenge ourselves.

Romit Shah - Barclays Capital

Great. Thank you.

Craig Barratt

Thanks, Romit.

Operator

Our next question comes from Daniel Berenbaum of Cowen and Company.

Daniel Berenbaum - Cowen and Company

Yeah, hi. Thanks for taking my call. Just if you could look out into the first half of '09 and recognizing that you don't want to give guidance out that far. But maybe you could just help us understand to what extent the product cycles are going offset? What could both be normal seasonality and the continually weakening macro environment? And then, just real quickly on Q4, did that $0.36 to $0.40 guidance include or exclude that $2.8 million tax benefit?

Jack Lazar

So on the tax benefit, it included the $2.8 million. So it's kind of our normal tax rate with the benefit. And I would point out that that benefit was there in the previous year. So this is basically the R&D tax credit that you don't know whether it's going to get approved or not until the end of the year and Congress included it as part of the bailout bill.

Overall looking into 2009, really that's not a practical thing for us to do at this point. We can talk in generalities like I just did about some of the key areas that we think our product cycles will do very well, but what we don’t know and what I think we were pretty clear about in our script is that the impact of the overall economy. And so, I think, until we get closer, it would probably be inappropriate to actually comment on that.

Daniel Berenbaum - Cowen and Company

Okay. Thanks.

Jack Lazar

Thanks, Dan.

Operator

Our next question comes from Mark Heller of Merrill Lynch.

Mark Heller - Merrill Lynch

Thanks. Most of my question has been answered at this point. But, Jack or Craig, I was wondering if you could comment on inventory levels at your customers currently?

Jack Lazar

So, I think, when we look out at inventory levels, we don't see anything all too troubling. The real question is what's demand? And I think that our customers are practical. For the last month, I think they've taken a much more practical approach to their inventory levels and they're listening to their OEMs and hopefully making the right decisions.

We haven't seen any dramatic moves there. I will tell you there are one or two customers where there was a little too much inventory, particularly in the retail segment, and that's incorporated into our guidance as we move forward here in Q4. But, overall, I wouldn’t say that's a pervasive issue. It is anything, but a pervasive issue across the channel.

Mark Heller - Merrill Lynch

And, I guess, some companies in this type of environment tend to ask for additional pricing concessions on semis, things start to slowdown. Are you starting to go see that and looking out to your sort of product roadmap, what type of price declines do you bake into your model to maintain sort of a high 40s gross margin type of financial model for the company?

Craig Barratt

Mark we've lived in a climate where we've really exploited over the last few years, elasticity of pricing, we've really driven our products strategy towards integration to drive cost down. So, I think, where as a business, we have been focused on costs for a number of years. And so, I think, we have a roadmap which serves our customers with not only performance gains, but also cost downs, which I think can allow us actually to take advantage of a situation where customers are becoming more cost-sensitive.

Mark Heller - Merrill Lynch

Okay. Thank you.

Craig Barratt

Thanks, Mark.

Operator

Thank you. Our next question comes from Jonathan Goldberg of Deutsche Bank.

Jonathan Goldberg - Deutsche Bank

Hi, guys. I just want to go back to the question of cost structure, quickly. Given your constraints now with economy and your plans for cost savings, how are you going to prioritize R&D spending and some of the things you sort of have to keep going to keep the product line moving along? And, in particular, I am thinking of, can you give us a sense of what some of the big expenses might be out there? Things like taking out the next generation process geometries? I know you're not in a hurry to get to the next node, but at some point you all will start thinking about it. What that expense curve going to look like?

Craig Barratt

Sure. Jon, I think we've made some very big investments in the team over the last few years and we grew our headcount to 1,040 at the end of Q3. Of course, we don't expect it to increase much beyond that level. I think that creates a level of scale and efficiency and parallelism in the company where with our geographic reach, we now have a number of parallel design teams around the world which can execute our product strategy and our product roadmap without any significant changes. So, I think, we're actually well positioned to deliver on what we think need to do to lead the markets that we're in.

Jonathan Goldberg - Deutsche Bank

Okay. Going quickly to laptops. [Can you] tell me your market share in laptops in general. But can you give us a sense of where the low cost laptop segment, what your market share is there relative to other categories of laptops?

Jack Lazar

I think we can tell it's disproportionately more. I think that's the best way to put it. There are still laptops, netbooks et cetera where we feel like we can gain additional market share. Some folks out there who haven't quite chosen to use us yet. In addition, the big thing that works to our advantage in the low cost notebooks is there is no Centrino, you're really only going to non-Centrino based solutions down there.

So, that's one of the reasons why we view it as a good opportunity and that's one of the reasons why when we look at our PC business in Q4, we can see it to be relatively flat, even though, we know the overall PC business in general is probably not quite that healthy.

Jonathan Goldberg - Deutsche Bank

Right.

Craig Barratt

Right. And another factor, Jon, is that our dollar content in a laptop is not completely proportional to the OEM selling price. So our dollar content for mid-to-high end 11n solution in a $2000 laptop is certainly not cut by a factor of four when we have a lower cost solution in a $500 laptop, so our dollar content is a flatter curve than one-to-one compared to the selling price of the platform.

So, if there's a shift or as there's a shift to more value segment platforms, the overall revenue, the total revenue that the end customer experiences might go down because of the shift to lower cost platforms that our revenue dependence is more moderated, and that's something that magnifies the benefit to us of having growth in the value segment platforms.

Jonathan Goldberg - Deutsche Bank

Great. Thank you.

Craig Barratt

Thank, Jon.

Jack Lazar

Thank, Jon.

Operator

Our last question will come from Gus Richard of Piper Jaffray.

Gus Richard - Piper Jaffray

Yes. Thanks for taking my question. When you look at your expenses for next year, it's hard to predict what next year is going to be. But will you keep expenses in line with revenue growth? Is that the way to think about that?

Jack Lazar

I think we are very focused on living within our means. You can't say that you're going to able to perfectly map it up. You look at this quarter where we grew 14% and we grew OpEx 6%. So, we had a favorable impact in the most recent quarter. But we are very, very cautious, right now. We've been careful about our discretionary expenses. Everyone in Atheros knows that we are watching our pennies, right now. And they're all acting accordingly.

So, headcount obviously is the big thing that drives it, Gus. And we feel like with the ads that we've had in the just the last two quarters, alone; frankly we've added almost 10% of the company in just the last two quarters. We're actually just going to start seeing the productivity of some of the newer employees as we head into the beginning of next year. So, we're actually in a pretty good spot, we'll be very practical about it as we've always been, and we'll do our best to live within our means.

Craig Barratt

I think also our Asian focus has been one that's positive, we've got extraordinarily talented and strong teams in a number of geographies in Asia, Taiwan, China and India. And the productivity of those teams is really impressive. And, I think, this has been something that's allowed us to really keep our average costs per head in the company pretty competitive and one that's really led us to leverage the talent in those geographies. So, I think, that's a positive thing as well.

Gus Richard - Piper Jaffray

Got it. And then just one more time on the gross margins for the guidance for Q4, the flat sequential guidance effectively is a function of mix?

Jack Lazar

It is a function of mix, it’s a function of some more supply chain efficiencies. I think that's pretty much it. What it tells you is we have done a pretty good job of migrating the mix in a way that we think is good for the overall gross margin of the company.

Gus Richard - Piper Jaffray

Got it. Thank you.

Craig Barratt

Thanks, Gus

Jack Lazar

Thank, Gus.

Craig Barratt

So, I would like to thank all of you for joining us today. Atheros will be participating in several investor conferences in November and December including the Thomas Weisel Partners Small and Mid-Cap Conference in Chicago on November the 17th; the UBS Global Technology & Services Conference in New York on November the 18th; the Credit Suisse Annual Technology Conference in Scottsdale on December the 3rd; the NASDAQ OMX 22nd Investor Program in London on December the 3rd; the Merrill Lynch Small Cap One-on-One Investor Forum in Boston on December the 9th; and the Barclays Capital Global Tech Conference in San Francisco on December the 10th.

Thank you again for your interest in Atheros. Good-bye for now.

Operator

Thank you. Once again, that does conclude your conference for today. Please disconnect all remaining lines.

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Source: Atheros Communications Inc. Q3 2008 Earnings Call Transcript

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