TriQuint Semiconductor, Inc. Q3 2008 Earnings Call Transcript

Nov. 3.08 | About: Qorvo, Inc (QRVO)

TriQuint Semiconductor, Inc. (TQNT) Q3 2008 Earnings Call October 22, 2008 5:00 PM ET

Executives

Steven J. Buhaly – Vice President – Finance, Chief Financial Officer

Ralph G. Quinsey – President & Chief Executive Officer

Analysts

Edward Snyder – Charter Equity Research

Tim Luke – Barclays Capital

Stephen Ferranti – Stephens, Inc.

Nathan Johnson – Pacific Crest Securities

[Bink Nogamutie] – JP Morgan

Aalok Shah – D. A. Davidson & Co.

Drew Berg – Century Hill Partners

Operator

Good afternoon. My name is Natasha and I will be your conference operator today. At this time I would like to welcome everyone to the TriQuint Semiconductor third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference call over to your host, Mr. Steve Buhaly.

Steven J. Buhaly

Good afternoon and welcome to our third quarter 2008 conference call. This call will include forward-looking statements about TriQuint’s projected financial and operating results. Results could differ materially based on various factors including those described in our reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission.

This presentation also includes non-GAAP financial measures which exclude equity compensation charges and charges associated with the acquisition of WJ Communications. These non-GAAP measures are provided to enhance overall understanding of our core operating performance. A full reconciliation of these non-GAAP measures is in our press release.

Ralph will now provide an overview of the quarter.

Ralph G. Quinsey

Our results for the quarter are impressive and demonstrate our strength in technology and new product execution. We are helping customers deliver better range, higher data rate and longer battery life in smaller and thinner consumer applications. Our expertise in high power RF and millimeter wave applications distinguishes us as the go-to team for the communications and defense industries.

Revenue at $186 million was up 52% from Q3 2007 and 47% sequentially. We’ve demonstrated our ability to grow aggressively in all of our markets: handsets, networks and military; leveraging our technology strength in RF focus successfully across multiple market applications.

TriQuint remains the most diversified RF supplier in the market. New product revenue defined as revenue from products introduced within the previous two years has accelerated and was 59% in Q3. The company is delivering solid financial results with non-GAAP operating income more than doubling on a sequential basis in spite of the challenges that come with rapid sequential growth and the headwinds of erratic precious metal prices. For the quarter we generated GAAP earnings of $0.08 and non-GAAP earnings of $0.12.

In summary, this was an outstanding quarter for TriQuint. Even so we are adversely impacted by extreme changes in platinum prices, a precious metal used in our manufacturing process. Platinum prices increased significantly in the months prior to July and then abruptly dropped to about half its value by the end of September. This had approximately a $5 million unfavorable impact on our cost of goods sold of which about $4 million was attributed to reclaim prices substantially below the original purchase prices.

We had a very successful ramp of the two major programs previously discussed, driving 3G and wireless line growth. Yields finished the quarter at target levels but took a big longer than expected to get there. Additionally, we were filling in empty pipeline for those products, creating demand above end product demand. Looking forward we expect improved yields, healthy gross margin and some near term order slowing to balance inventories with growth for these programs resuming in 2009.

In our handset market, revenue increased 54% in Q3 2008 as compared to Q3 2007 and 65% sequentially. Our revenue in 3G grew 195% sequentially, becoming the largest portion of our handset revenue. Our TRITIUM 3G PA duplexer modules have enjoyed tremendous success with revenue up significantly from the previous quarter. These complex, highly integrated front end modules offer better efficiency, enabling longer talk time for our customers. Our solution at 7mm-by-4mm is the smallest fully integrated complete transmit chain available in the market. This is critical for customers who are focused on small form factor solutions.

The handset market is changing. The promise of 3G and wireless broadband is now a reality. Impressive new handsets are now coming into the market with functionality that is innovative, lifestyle changing, cost effective and fun. It is no longer adequate to describe just components for these handsets; customers now demand solutions to problems. TriQuint offers the complete RF solution in the most integrated form factor.

For example, it is not sufficient to have devices for one or two bands in a seven band application. Customers increasingly want to focus on time to market and leave complex RF designs to us. We provide four bands of GPRS/EDGE and three bands of wide-band CDMA elegantly and simply with an industry leading form factor and best-in-class battery life. Customers are asking us to add additional bands to our solution for the next generation phones and we are responding to those requests.

Our customers focus on performance and time to market and our less interested in trying to source one-half RF part from supplier A and another device from supplier B. They are migrating to those suppliers that have the best technology, performance and support across all bands with total RF solution. RF content in a 3G world phone has climbed north of $6 and is going up as additional bands are added.

Although TriQuint is actively developing solutions that will reduce the cost of these added bands, the additional RF content in 3G phones will remain a market driver throughout 2009. I expect the 3G phone’ll push the market, which is now about 10% to 15% of total units, to grow faster than the overall market in 2009. This benefits TriQuint due to our strong product position in 3G transmit modules.

Moving on to our networks market, revenue was up approximately 59% in Q3 of 2008 as compared to Q3 of 2007 and 28% sequentially including WJ revenue. The increase was driven by strength in wireless LAN and optical product sales. Networks’ wireless LAN revenue increased at 174% compared to the year ago quarter and was up 33% sequentially following a strong Q2.

RF for laptop data is a fast growing market for TriQuint, estimated to be about $300 million in 2008. Laptop shipments have now overtaken desktop units and the attach rate of wireless LAN for laptops is very high. Similar to 3G, RF content for wireless LAN has increased as the requirements for greater data rates and faster access have increased.

TriQuint has successfully developed highly integrated solutions that provide superior performance in RF connectivity for our customers. This is an example of our ability to leverage our corporate focus on RF solutions across multiple markets. This market is also developing mobile devices that are taking on new forms. For example, netbooks and MIDs are mobile internet devices. These new forms combining the traditional laptop and wireless LAN attachment to handsets have created a significant growth opportunity for our company.

TriQuint is capitalizing on that opportunity and typically winning based on performance as data rates and range requirements increase, developing RF solutions that meet specifications for 802.11n are more challenging than those of previous generations. TriQuint has a top tier reputation in the wireless client market due to our technology leadership and superior products.

Our base station revenue was up sequentially with the addition of WJ revenue, a large majority of which falls into this market. Over the last year the acquisitions of Peak Devices and WJ Communications combined, with the core TriQuint team, has created an outstanding product development capability and an attractive product portfolio which now drives approximately $100 million a year in revenue for the base station market. This includes our product for point-to-point radios, transceiver cards and our power both active and passive.

Our point-to-point radio market was stronger than planned once again this quarter due to renewed demand from developing countries. Looking forward the base station market is eager for green solutions and TriQuint has positioned itself to offer products that significantly improve the efficiency of the RF application stage in power hungry base stations.

Our growth in optical, up significantly, is due to a surge in orders for 10 gig products and strong customer pull for new 40 gig products. This increased demand is due to bandwidth requirements from the ever increasing data and video traffic generated by new customer, new consumer applications. The goal of simplifying RF across all of our network markets is to bring high performance products, ease of customer design and superior value to our customers. This strategy is driving growth and solid financial performance for TriQuint.

Finally, in the military market our defense related revenues were up 22% in Q3 of 2008 as compared to Q3 of 2007 and 7% sequentially. This is excellent growth for this market. We are seeing solid demand for radar retrofit products and SAW filters for communication applications. In fact, this is a record revenue quarter for our passive devices in this market. We recently announced a $4.5 million award from the Office of Naval Research to advance manufacturing methods in the production of GaAs technologies.

With the solid order trend we are now seeing, I expect Q4 military revenues to be up sequentially. I am proud to brag about our military team. This team received two awards this quarter: a strategic supplier award and a bought innovation award; both from Northrop Grumman Corporation’s electronics systems group.

Lastly, we continue to see strong customer interest for our military module strategy. This strategy migrates TriQuint from a die or device supplier to a solutions supplier for our military customers. This strategy is grounded in our unique capability to leverage technology and module integration providing high performance solutions which will open up new sources of revenue for TriQuint. We are actively working on programs today which should generate meaningful revenue in 2010 and beyond.

In summary, TriQuint delivered unprecedented revenue growth in the quarter and solid bottom line results. Each of our markets is contributing to our growth. Looking forward I see strong and healthy product pipeline and I’m very enthusiastic about TriQuint’s ability to deliver shareholder value.

With that said I want to comment on the impact that precious metals pricing to our bottom line and share the limited visibility I have for 2009. Platinum and gold are important materials in GaAs technology and are used by virtually all GaAs suppliers although TriQuint may be unique in how we use these metals.

There are two general practices: one is called evaporation; the other is called sputtering. TriQuint uses the sputtering technique to enable higher performance at lower cost. Our recognition in the marketplace for excellent technology is evidence of this. Sputtering as a process is dependent upon loading the equipment with a very large target of the metal to be deposited. This target may last several months in a particular piece of equipment. The process does not use these targets efficiently; in fact, about 20% of the target is consumed before a replacement is required. The remaining 80% of the base metal is reclaimed.

In an environment of normal commodity price variations, the commodity price delta between purchase price and reclaim is immaterial. During Q3 2008 the price of platinum fell from about $2,000 per ounce at the beginning of the quarter to about $1,000 per ounce at the quarters’ end. As we were ramping capacity and bringing on new equipment during the quarter we reached a record level of troy ounces of platinum. Our timing was driven by business needs, not commodity pricing and we experienced a very unfavorable reclaim price ratio with the resulting effect on our cost of goods sold.

In the long run the lower cost of platinum is a welcome cost reduction. Learning from this unusual experience we are accelerating products to reduce the impact of precious metal fluctuations on our income statement. Looking forward to 2009 we have a healthy new product pipeline and see increasing RF content driving strong demand. Even so it would be unwise to ignore the potential impact of the current financial crisis on our business.

Prior to this crisis I would have expected 2009 to be a solid growth year. Unfortunately, I do not have great visibility at this time and what visibility I do have is mixed. There has been a slowing in orders from some of our customers but we continue to see pulling from other customers. I still expect growth in 2009 but economic uncertainty is the dominant variable.

Regardless of the impact TriQuint will manage our risks appropriately and be ready to respond to opportunities. I am confident any slowing in growth will be large attributed to economic slowing and TriQuint will use this period to expand our market share. The company is on a solid foundation of core technology strength and excellent products.

At a level apart from this crisis and the slowdown it may bring, we continue to see long term market growth and growing content for RF suppliers. The company is well positioned in the 3G handset market where we expect the growth rate to be well above the overall handset growth rate, offering us the opportunity to buck the trend. We will weather what 2009 brings us and I expect the company to come out stronger for the effort.

Now Steve will provide results from the third quarter 2008 with our guidance for Q4.

Steven J. Buhaly

For the third quarter of 2008 we reported revenue of $186.3 million. Revenue increased 52% from the third quarter of 2007 and 47% sequentially. Foxconn was the only customer representing more than 10% of our revenue in the quarter. For the quarter our revenue to end markets is as follows: handsets 55%, networks 37%, from military 8%.

Our revenue by geographic region was Asia 74%, Americas 18% and Europe 8%. WJ Communications revenue was $13.9 million in the quarter, up from $5.6 million in the partial prior quarter. Please refer to the supplemental data posted on the investor section of our website for a detailed breakdown of our revenue by market.

Our book-to-bill ratio for the quarter was 1.02. Our gross margin for the third quarter was 31.4%. Third quarter non-GAAP gross margin was 33.0%. Gross margin was reduced by the impact of precious metals prices by approximately $5 million or 2.7% of revenue. Lower-than-expected yields due to new products, equipment and personnel also kept margins below last quarter’s achievement of 37%.

Operating expenses were $46.3 million for the third quarter and $44.0 million or 23.6% of revenue on a non-GAAP basis. A full quarter of expense from WJ Communications’ acquisition was the largest factor driving the sequential growth. We recorded interest income of approximately $600,000 and tax expense of $1.1 million. Net income was $11.8 million or $0.08 per diluted share for the third quarter, up from $0.02 in the prior quarter. Non-GAAP net income in the third quarter was $17.1 million or $0.12 per diluted share, up from $0.07 in the prior quarter.

Return on equity using non-GAAP net income was 12.3% on an annualized basis. Cash flow use in operations was $13.8 million in the third quarter of 2008 driven by growth in accounts receivable of $33.6 million. DSO or days sales outstanding at 57 days was down 3 days from the prior quarter. Inventory was flat and turns improved to 4.7. Capital spending of $25.4 million was partially offset by net borrowing on a revolver of $13 million.

During the first quarter we expect working capital to be net positive and capital expenditures to be significantly lower than the third quarter. Non-GAAP financial measures excludes stock based compensation charges, amortization of intangible assets and in Q3 about $1.0 million due to inventory evaluation impact associated with the acquisition of WJ Communications.

Complete reconciliations of GAAP to non-GAAP results are available in our press release and in the investor section of our website. Regarding the outlook we estimate that first quarter revenue will be $160 million to $175 million. Fourth quarter earnings are expected to range between $0.08 and $0.11 per diluted share with non-GAAP earnings ranging between $0.11 and $0.14 per diluted share. As of today we are approximately 90% booked to the midpoint of revenue guidance for the fourth quarter.

Investor relations activity during the fourth quarter includes a visit to New York and Connecticut with D. A. Davidson on November 6 and 7 and participation in the Stephens Conference in New York on November 18 and the Barclays Global Technology Conference in San Francisco on December 10. We look forward to seeing many of you at these events.

I will now turn to Ralph for closing comments prior to welcoming your questions.

Ralph G. Quinsey

TriQuint is on track to achieve a record revenue year and based on the midpoint of our Q4 guidance, approximately 30% non-GAAP earnings growth year-over-year. We are gaining share in virtually all of our markets and our product pipeline for 2009 and beyond is exciting. The product roadmap includes next generation TRITIUM modules, growth in wireless LAN for handsets, flip-chip-based power amplifier modules, radar programs in military that are transitioning to production and high voltage GaAs products that are opening new market for us.

We are fulfilling the strategic intent of rapidly growing our handset opportunities, giving us the size and scale to be cost effective. We are attracting R&D funding with our military team, allowing us to maintain technology leadership and we are expanding our presence in the networks market where high performance solutions yield attractive margins.

For the uncertain times ahead, TriQuint will take a conservative stance for its spending but will maintain our focus on the tremendous opportunities we have in front of us. With that I’d like to open it up for questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Edward Snyder – Charter Equity Research.

Edward Snyder – Charter Equity Research

Ralph, obviously you were hit by a $5 million gross margin on the gross margin line due to materials. Can we reasonably expect that’s not going to be case in the following quarter and also if you back that out and you look at what your possible gross margins are for the period, you still dropped 100 basis points or so. Was that primarily inefficiencies or is it the mix of WJ? I’m just trying to get a feel for once we get a stabilized material cost, what we can expect for gross margins.

Ralph G. Quinsey

Either of your assumptions are largely correct. I’m going to turn it over to Steve to give the detail on that.

Steven J. Buhaly

Yes, I think it’s very unlikely that we will have an impact from precious metal prices as we did in the third quarter. You guy don’t know and I don’t know where the prices are going to end up during the course of the quarter but if platinum fell another $1,000, the fourth quarter would be free thereafter. We’re not going to have anything of that magnitude and historically it’s been immaterial to our results so I think it’s reasonble to expect that will be the case going forward.

Relative to non-GAAP gross margin in the quarter, had we not had this issue with precious metals we would have been at about 35.7%, short of where we’d hoped to be and then the remaining 130 basis points is largely attibutable to inefficiencies in our ramp process where we brought in new capacity, new people. We ramped two major platforms and it just took us a bit longer to get to our targeted margin, targeted yields than we expected.

The good news is we did get to those yields by the end of the quarter.

Edward Snyder – Charter Equity Research

You are at the yields now and correct me if I’m wrong but it sounds like the pricing worked heavily against you. It wasn’t so much that you saw massive increase, it was the fluctuation you bought when they were expensive and then you had the reclaimed product when it was inexpensive.

Steven J. Buhaly

Yes, we had that and it had the worst of all worlds in that we were ramping our capacity and filling in a couple of additional sputtering machines unwittingly at the peak of the commodity market.

Edward Snyder – Charter Equity Research

Alright. And so when you reclaimed them it was also less expensive. And then in terms of, great revenue ramp. December looks weaker than that, not weaker, good but down sequentially. How much of this is due to, you have two major platforms ramping in the quarter: one in wireless LAN and one in handsets. How much of that went to inventory or are pre-shipment inventory and in terms of a run rate level, we can’t reasonably expect to see the same thing in the subsequent quarters? I’m just trying to get a feel for, the big boost you are at the top line, how much of that is won off on ramp of new products to these two customers?

Ralph G. Quinsey

I’m not sure I can quantify it but let me just qualify it. I think that the impact of filling the pipe, filling up the inventory shelves for our two majors program, certainly took us up higher than the normal run rates and we will see some leveling and some retrenching for that. I do expect those programs to continue to grew then in 2009. And then that’s offset to some extent by, we’re ramping up new products, new design wins. 5,012 I talked about which was widely designed in for use everywhere. Qualcomm had a design withh their solution for wideband CDMA; we won that spot as well.

So hard for me to quantify it but I would say it was a significant impact to the Q4 guidance as far as just, once you fill up the pipe you’ve got to reset and then grow from there.

Edward Snyder – Charter Equity Research

Final question. Anadigics is holding a call right now too; obviously, things didn’t go so well for them. They lost a lot of shares and some major customers. You picked up some of that share; so did Skyworks. The story now is that prices are going to drop because they’ve got a lot of excess capacity and they’re going to buy their way back in the business. They’re not necessarily telling that but that’s what the street expects and that’s what the color looks like.

What’s the design cycle for these products? I’m not asking you to handicap their performance but once you’re in a product like this and they’re being ramped and new things that you’re in and new laptops that you’re in, if you had a competitor come in and just lower prices, could they get in anytime soon or would that have to wait for the next cycle? How does it work?

Ralph G. Quinsey

Sure. Let me just talk in generalities about the wireless LAN space. Typically, we’ve seen an annual design cycle. I do believe we’re seeing that stretch out to 18 months because it’s hard for the world to keep up with an annual design cycle and we’ve gotten feedback from some of our customers that they would stretch out to 18 months.

We typically are winning on performance. We have characteristics in 802.11n and a unique capability with our design team combined with a technology known as EDP and that I think gives us a distinctive advantage so we typically gives us a distinctive advantage. So we typically win on performance.

That’s not to say that this won’t be a competitive market or that TriQuint will continue to drive cost to make sure that we can be successful in a competitive market.

Edward Snyder – Charter Equity Research

But in the case where you’ve got a competitor, let’s just say, I don’t want to handicap but all else being equal, relatively similar performance but they’re undercutting pricing to, and they’re losing money anyway. Can they get into this platform any faster than 18 months a year? Will somebody like an Intel or like an Apple or another big handset at OEM bring a new supplier on or do you have to wait for the next shot at a phone?

Ralph G. Quinsey

Again, that’s a good question for end customers. We’re not the only supplier into this marketplace; there are people in the market as well and we will compete for share on the sockets. I think if a brand new supplier was going to come in to some customer in a brand new socket, it would probably take that year or 18 months to get into it.

Operator

Your next question comes from Tim Luke – Barclays Capital.

Tim Luke – Barclays Capital

I was just wondering if you could help us frame how we should think about your operating expenses developing as you plan for the fourth quarter and separately, maybe just having had such a robust third quarter particularly in the wireless area, you did give us some color on some of the factors that are leading to just an environment that’s somewhat below normal seasonality for the fourth quarter, how you see the base of pull of demand and maybe how you see inventory levels there.

Steven J. Buhaly

This is Steve. I’ll take the first half and I’ll turn the second question over to Ralph. In the third quarter our operating expenses were $44.5 million in a non-GAAP basis. I think they’re, $44.0 million sorry. I think they’re going to be right in that region in the fourth quarter. We are probably like everybody else in America; holding a pretty tight leash on operating expenses. And with our guidance we still want to come in very, very close to our 25% of revenue model for non-GAAP op ex and so I think we’re going to hold the rope pretty tight.

Additionally, there will be some modest reduction in the operating expenses from our WJ acquisition. Those reductions will be in primarily admin or a bit in some marketing as we continue to affect the consolidation of that acquisition into TriQuint.

Tim Luke – Barclays Capital

Is this the [inaudible] on the other side of the margin? Should we expect you to be, I think what you refer with that question is do you expect to be back to where you were in the second quarter in the fourth quarter in terms of the gross margin?

Steven J. Buhaly

I think that’s a very reasonable expectation.

Ralph G. Quinsey

And then the second part of your question, Tim. You’re right; we had an incredibly robust third quarter driven largely by the strength in our 3G products and in our wireless LAN products. We are looking into the fourth quarter and we’ll feel some resetting of that demand along the lines of the conversation still in the pipeline.

On a broader look for fourth quarter, it really is mixed. Across all of our markets I am seeing great uncertainty. Some of our handset customers are pulling in orders right now and some of our handset customers are working inventory levels down. Same with our network customers. Military seems fairly robust and strong and I expect that to be sequentially strong.

Operator

Your next question comes from Stephen Ferranti – Stephens, Inc.

Stephen Ferranti – Stephens, Inc.

I wanted to see if you might be able to quantify the quetsion on inventory and the challenges a little bit more. Do you have any sort of sense for the number of weeks of inventory in the channel, really I guess outside of the two product ramps that you’re going through right now. I guess in your core business, any sort of more quantitative measurement you could put on that and then I guess how does that compare to more historical levels?

Ralph G. Quinsey

That’s a great question, Steve, and unfortunately it’s dependent upon knowing what the demand is going forward, to anticipate the number of weeks of inventory. And as you I’m sure are aware there’s just great uncertainty in the whole system as far as forward-looking demand. I would characterize channel inventory as what we would have expected basically but more uncertainty around weeks just because we don’t know the demand. That’s as much color as I can give you. I wish I could give you more; it’s a reasonable questsion but that’s the best I can do.

Stephen Ferranti – Stephens, Inc.

That’s a very reasonable asnwer. And then I guess just operationally, can you give us an update as to how the capacity ramp at Hillsboro was going? Are you at your capacity level that you’re targeting or do we have another wave of capacity adds to go there?

Ralph G. Quinsey

We are putting the finishing touches on our ramp for this year. As I discussed in previous calls we were going to significantly increase our capacity in Oregon and that rolls into the system, has been rolling in and rolls into the system through Q4. And so I feel very comfortable with our ability to respond to any type of upside going forward. Of course, that will pry up a little bit of headwind as far as utilization impact. Depreciation will be slightly higher; it is slightly higher.

But by and large I’m very comfortable with where we are right now I think with just the capacity added at just the right time.

Stephen Ferranti – Stephens, Inc.

So it sounds like by the end of the year you’ll be close to capacity at Hillsboro?

Ralph G. Quinsey

Yes.

Stephen Ferranti – Stephens, Inc.

In terms of the full I guess potential for capacity in that facility?

Ralph G. Quinsey

Yes. And, I expect utilization in the current quarter to be flat to down and then of course as we move in to the seasonal down quarter we’ll see pressure on utilization.

Stephen Ferranti – Stephens, Inc.

Then I guess one more for me, you guys have been targeting sort of a model where you have 25% of revenues as you’re operating expense. Is there any potential for upside to that as we look out to ’09 and beyond? It seemed like you’ve been investing a fair amount in R&D which is understandable given the new products you’re rolling out. Is there a point in the future where we should begin to see some leverage on that investment?

Ralph G. Quinsey

Absolutely, I believe there’s an upside to that model. When you look at our performance this year and set aside the erratic metals pricing and the increased cost for precious metals and look at our revenue growth we feel pretty good about getting pretty close to the model. Strategically, we think that there is more to be gained out of the system.

I’m not ready to put another model in front of the investment community, we want to work through that process but over the next two or three years I think that we can continue to harvest good shareholder value from just a wonderful asset here at TriQuint.

Operator

Your next question comes from Nathan Johnson – Pacific Crest Securities.

Nathan Johnson – Pacific Crest Securities

I was wondering what your guys expectations for WCDMA design wins outside of your current customer base. And secondly, I was wondering about the prospects for doing multiple band WCDMAs or if we’re potentially going to see wideband PAs before that?

Ralph G. Quinsey

As far as our expectations for wideband CDMA design wins outside of our current customer based, certainly our expectations are robust for continued growth. We have what I believe is the best form factor and best performance solutions, a very elegant solution. We manage all the content, a large majority of the content within our own factories. That allows us to be very nimble and squeeze out just outstanding performance for those solutions.

Keep in mind we break that up to the linear bands or often called the data bands and then the voice bands or the saturated bands for GPR GSM edge and we have seen success with our PA duplexes across the linear bands, our power amplifier modules and I expect to see some stuff in our transmit modules in the voice bands. So, I believe lots of opportunities in front of us. The second part of your question was?

Nathan Johnson – Pacific Crest Securities

It’s regarding the prospect of multiple band PAs or wide band PAs?

Ralph G. Quinsey

I think that customers will not stand still for the ever increasing RF content in handsets. We’re seeing that benefit as we went from about $1 to $1.5 growing to $6 and there continues to be band added. Our customers are asking us to add bands and we’re responding to that. At the same time we are actively working on a solution that does put more of the solution in less [gallium arsight] area. In essence making a smaller footprint, lower cost solution, a wide band solution or often called a converged solution.

We think that we will be a leader in that area but I think you are going to see the content expansion extend in to 2009 and it will be 2010 before you start to see or hear about that being impacted. You may hear about some solutions that take all the pieces and put it in to one module. I really don't view that as helpful to our customers of the industry because it doesn’t fundamentally lower cost it just repackages the solution.

Nathan Johnson – Pacific Crest Securities

Then I guess kind of along those lines I guess in the shorter term, are you guys seeing an abnormal amount of pricing pressure for the PAs and the 3G handsets? I think you talked in the past kind of the $5 to $6 range per handsets. Is that still appropriate or should we sort of adjust those down going forward?

Ralph G. Quinsey

Well, what I’ve tried to guide people from modeling this business is to just for simplicity, use a $1.50 for a transmit module solution. For GSM it might be a little less than that and for 3G it might be a little bit more than that but just use $1.50 for modeling purposes and count the amount of transmit modules going to a solution.

In a typical [inaudible] right now, if you use the complete RF solution from TriQuint you have a transmit module for the voice for saturated band and three bands, band one, two and five for the linear data bands and I believe in the future you’re going to start to see more bands being pulled in, bands eight for example. It’s actually going up still before it will go down.

Operator

Our next question comes from [Bink Nogamutie] – JP Morgan.

[Bink Nogamutie] – JP Morgan

Steve you already talked about the fourth quarter run rate being down from the third quarter because of your two major platforms filling the pipeline and then the inventory build. But, in terms of growth coming back in 2009 do you expect that to be a first half phenomena or more of a second half phenomena?

Steven J. Buhaly

Not a lot of good visibility about 2009. Typically in Q1 we see some seasonally down adjustments after the selling season around the world or inventory adjustments. Typically you would find that this time of year that the whole world is bulking up anticipating a selling season and then they take stock in Q1 and readjust and then Q2 begins to rise and then again a strong second half.

There is so much uncertainty right now in 2009 I am just not able to give you really clearly visibility on what I think is going to happen. I think we just need more time.

[Bink Nogamutie] – JP Morgan

But is it fair to assume that you are expecting some growth in ’09 compared to ’08 it’s just that you can’t quantify what it is and also the timing of the growth?

Steven J. Buhaly

It is absolutely a good assumption to assume that we’re going to grow in ’09 as compared to ’08. How much we grow is really the question I’m debating.

[Bink Nogamutie] – JP Morgan

I know you already talked about your military business being up in the fourth quarter, can you add some more color to your networks business? We talked about the one major platform but besides that are you seeing a general slowdown in the network business as well as a result of the macroeconomic condition or is it in somewhat better shape than the cell phone handset business?

Steven J. Buhaly

Again, I’m seeing mixed feedback in the networks business. We were being expedited by customers and some customers are still being expedited in the networking business and we have some customers that are starting to look at ways they can optimize their inventory in anticipation for what they believe will be a difficult 2009. So, not a clear signal in either network or handsets.

Military continues to be quite robust. So, I feel stronger about that business sequentially for Q4 and even in to the early part of 2009. Less visibility on the network and handsets, really mixed signals.

[Bink Nogamutie] – JP Morgan

One other questions, in regards to your operating expenses, you already mentioned that you’re going to maintain that at pretty much the same level that it was in 3Q ’08 but, if things get really tough in ’09 are you open to the idea of reducing op expenses or are there no such plans as of now?

Steven J. Buhaly

You know, it’s just premature to give you any type of guidance about what’s going to happen in ’09 because I don’t know what’s going to happen in ’09. I can sit here and speculate but it’s really premature. Let’s have a chance to try to digest some of the most dramatic uncertainty that at least I’ve ever seen in my career and make reasonable choices and decisions on that. We’re going to manage the business prudently and we’re going to maintain good support of the opportunities in front of us.

[Bink Nogamutie] – JP Morgan

On that point, how would you compare this with what you saw in ’01 ’02 time frame? Does this look much worse, about the same?

Steven J. Buhaly

Well, it’s different and the same. I’ve never seen this big of a crisis on the financial portion of the markets, never in my life. I think it’s still premature to say how bad the economic storm is going to be. We all see a storm on the horizon certainly driven by this financial crisis but the storm isn’t here yet. We see it coming and most of us know that it’s going to be a big storm but like I said, we don’t know how big yet.

Operator

Your next question comes from Aalok Shah – D. A. Davidson & Co.

Aalok Shah – D. A. Davidson & Co.

A couple of questions for you guys, in terms of the margins and yields going in to the next quarter can you give us a sense of what you envision rates were in this quarter and what you were expecting them to be down next quarter but can you give us a sense of magnitude?

Ralph G. Quinsey

Typically when we talk about utilization we talk about our larger factory that has the most financial impact, that’s Oregon. We were at 82% approximately utilization in the quarter and like I said I think we’re going to be at about the same run rate or maybe a little below that in Q4.

Aalok Shah – D. A. Davidson & Co.

Steve, I know you’ve mentioned before to us that once you get up to $155 or roughly in that range you get close to 40% gross margin. It doesn’t look like you’re going to get there in the next quarter. Is that still because of yield then or are you just forecasting more precious metals expenses, kind of forecasting that we’ll see some headwinds from the precious metals in the next quarter as well?

Steven J. Buhaly

I’m not forecasting any headwinds from precious metals primarily because I don’t know where our commodity prices we’re getting are going to go. What we’re finding is that covering that final yard on the football field so to speak is pretty difficult and there’s a huge number of factors that at the end of the day go in to gross margin. So, as we see where the fourth quarter comes in we’re going to have to kind of double down if you will and focus yet again on what it’s going to take to get that last two or three percentage points on the P&L.

Aalok Shah – D. A. Davidson & Co.

And, in terms of revenue this quarter I mean it was phenomenal from the sense that you guys had so much revenue in Q3 but do you get the sense that maybe you pulled in a lot of revenue from Q4 in to Q3 maybe just people anticipating some kind of stronger Q4 initially and maybe things just got pulled in a lot more?

Steven J. Buhaly

I guess the short answer is no. We were responding to forecasted demand in Q3 that was robust and we anticipated some filling the pipe reaction in Q4. I think the big change from the last time we talked is this uncertainty in 2009 and that impact on Q4. That’s really the big change.

Aalok Shah – D. A. Davidson & Co.

Ralph, on Hadron about where that is. I know you mentioned that you’re expecting that to be an ’09 even more, maybe give us a sense of how many handsets you think you’re shipping at this point and what should we expect from that going in to the next quarter and then also in to next year a little more?

Ralph G. Quinsey

When you say Hadron you’re talking specifically the Hadron transit modules?

Aalok Shah – D. A. Davidson & Co.

Yes.

Ralph G. Quinsey

So, we have three families of transit modules. We have the Tritium, the Quantum and the Hadron. I think most of the activity is going to be around Tritium and Quantum. Those are the ones that are associated with the 3G complete solution. We do have a power amplifier module that I talked about a 5012, I think that’s what you’re referring to in the Hadron family that is widely designed in and we’re seeing very strong demand for that. So, I would expect to see growing revenue for that particular device Q4 growing in to Q1 and beyond.

Aalok Shah – D. A. Davidson & Co.

This is the last question for me, on foundry work that you guys do, do you guys do wafer pricing up front at the beginning of the year? Is that typically how it works?

Ralph G. Quinsey

There are variations but I would say it’s a good assumption to say that typically we negotiate foundry pricing once a year.

Aalok Shah – D. A. Davidson & Co.

Was that a little bit of headwind also with precious metal costs being up in Q3 therefore you weren’t able to get kind of the benefits of even a stronger foundry business in the quarter because of the expense associated with the wafers?

Steven J. Buhaly

If I understand your question, we did not translate any of the precious metal price changes in to end customer prices. It’s really not something that the market readily accepts. In other words, we ate the increase and thankfully that increase, prices are back down to a more regular level.

Ralph G. Quinsey

And, keep in mind that fundamentally lower cost for platinum is a good thing. We got caught in a reclaim pricing issue but fundamentally lower cost is good.

Aalok Shah – D. A. Davidson & Co.

I guess the question is will this help you out in subsequent quarters given that you’ve done all this more front end loaded it sounds like in terms of reclaim?

Steven J. Buhaly

I would say it’s going to be more like a year ago before this whole commodity bubble took effect. Gold prices haven’t really had the same runway that platinum has but with platinum back at I think it’s $8.50 today, that’s clearly going to reduce that aspect of cost from what we saw in the second and third quarters.

Aalok Shah – D. A. Davidson & Co.

I guess I’m just a little bit confused then, I mean it sounds like [inaudible] flattish, you’ve got positive headwinds from precious metal side, it sounds like gross margins should be up dramatically. If I’m right you should be in the 38% to 39% range. Am I being too optimistic there and why?

Steven J. Buhaly

I hope you’re right but let me give you my math and I’ll bring you a bottle of wine if you’re right. This quarter non-GAAP gross margin was 33%. About 2.7% was the impact of the precious metal hit in the quarter so ex precious metal you’re at 35.7% non-GAAP. We attribute about 1.3% due to the challenges and yield expenses we had associated with ramping revenue and two new platforms to the extent we did.

That get’s you back about to 37%. That’s my best guess given the tremendous number of variables that end up flowing in to gross margin.

Operator

Your next question comes from Drew Berg – Century Hill Partners.

Drew Berg – Century Hill Partners

First of all I missed who you said the one 10% customer was?

Steven J. Buhaly

The 10% customer was Foxconn.

Drew Berg – Century Hill Partners

Then as far as the book-to-bill, that was over one you said?

Steven J. Buhaly

1.02.

Drew Berg – Century Hill Partners

So can I see through that to strength in military and bookings for Q1 ’09 as normally is the case?

Ralph G. Quinsey

We had fairly healthy bookings in military and military is a business we expect to grow and it’s a little more detached from the day-to-day realities of the economy than the other businesses we have.

Drew Berg – Century Hill Partners

Then these two big new product platforms, the wireless LAN and the 3G phones, what’s the cycle times on those products?

Ralph G. Quinsey

As far as the manufacturing cycle time?

Drew Berg – Century Hill Partners

Yes, from the time you put it in to the time you ship it to the customer?

Ralph G. Quinsey

In rough numbers, that includes the process through front side wafer, back side wafer, shipment to our contract manufacturers, incorporation with other devices in to a module and then shipment out. I would say that process is in the range of 10 to 12 weeks.

Operator

At this time there are no further questions in the queue.

Ralph G. Quinsey

Thank you all for your interest and questions. TriQuint continues to execute the plan we have outlined for investors. The employees of TriQuint are excited about our opportunities and our customer partnerships are growing and expanding to produce truly amazing products across all of our markets. We are facing uncertain economic times and will exercise necessary due caution but our strategic opportunities are unfolding in front of us and it is exciting. I look forward to updating you on our progress during our Q4 earnings call. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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