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Executives

Thurman K. Case – CFO, Treasurer

Jason Rhode – President, Chief Executive Officer

Analysts

Tore Svanberg – Stifel, Nicolaus

Blayne Curtis – Barclays Capital

Vernon Essi – Needham & Co

Bobby Burleson – Canaccord Genuity

Andrew Huang – Sterne, Agee

Chris Longiaru – Sidoti & Company

Shawn Simmons – Oppenheimer

Chelsea Heffernan – Cirrus Logic

Cirrus Logic, Inc (CRUS) F3Q 2013 Earnings Call January 24, 2013 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2013 Financial Results Q&A session. At this time all participants are in a listen-only mode. After a brief statement, we’ll open up the call to questions for analysts. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thurman Case

Thank you, and good afternoon. Joining me on today’s call is Jason Rhode, Cirrus Logic’s President and Chief Executive Officer; and Chelsea Heffernan from our Investor Relations team.

Today, we announced our financial results for the third quarter fiscal year 2013 at approximately 4:00 p.m. Eastern Time. The shareholder letter discussing our Q3 financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information along with the webcast of this Q&A session are all available at the company’s investor relations website at investor.cirrus.com. This call will feature questions from the analysts covering our company as well as questions submitted to us via e-mail at investor.relations@cirrus.com.

Please note that during this session we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the company undertakes no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise. Please refer to the press release issued today, which is available on the Cirrus Logic website, the latest Form 10-K and 10-Q as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

Now, I’d like to turn the call over to Jason Rhode, our President and Chief Executive Officer.

Jason Rhode

Thank you, Thurman. Before we begin taking questions, I’d like to highlight a few of the things we discussed in our shareholder letter.

Q3 was another great quarter for Cirrus Logic, with revenue and earnings per share exceeding our expectations as we experienced stronger than anticipated product shipments through the end of the quarter. As a result, revenue was $25 million above the midpoint of our guidance. Given the higher revenue base in Q3, we now expect the sequential decline in Q4 to be more pronounced, although our expectations for total FY 2013 revenue will remain relatively unchanged.

During the quarter, we saw a significant increase in operating margin, up 8 percentage points on both a GAAP and non-GAAP basis to 34% and 37% respectively. We believe our ability to deliver substantial revenue growth while maintaining operating margins well above our peers is a unique combination of execution and success that differentiates our performance.

While we continued volume shipments of multiple new custom portable audio products in Q3, our efforts to diversify our customer base began to pay off in our audio product line where we are now shipping catalog devices to several mobile phone manufacturers.

In LED lighting, we continued to gain momentum in the third quarter, expanding our products into additional SKUs, regions and customers. We remain engaged with all meaningful Tier 1 accounts and expect to be on the shelves with another customer in Q4.

As we move into FY 2014, we are enthusiastic about the markets for both audio and LED lighting, and continue to see significant opportunities to grow our content with our existing customers and expand our business with new ones. Also, I’d just like to note that while we understand there is an intense market interest related to our largest customer; in accordance with our policy, we do not discuss specifics about our business relationship.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question comes from the line of Tore Svanberg with Stifel, Nicolaus. Please go ahead. Your line is now open.

Tore Svanberg – Stifel Nicolaus

Yes, thank you. Jason, I was hoping to start with the guidance. Could you talk a little bit about the relative visibility you have towards that number and maybe comparing that visibility versus where you were a quarter ago?

Jason Rhode

Well, I think overall our visibility is about the same every quarter. All we can do is rely on the data that our customers give us. We judge that to whatever degree we see appropriate given the overall environment. And frankly, the overall guidance that we gave last quarter, which included some hints about what we thought would be the case in the January quarter, overall the total was about spot on or about as close as you can get in this environment. So we feel pretty good about that.

We did see some shipments that we had expected to take place in the January quarter that moved into the December quarter and so that caused us to be significantly up in the December quarter and obviously caused the step down in January to be more pronounced than we had previously expected. But, overall, the total was right on – on about the right number. As far as visibility going forward, as far as we can tell, it’s about the same as it usually is.

Tore Svanberg – Stifel Nicolaus

Very good. And also, I don’t know if you want to comment on this or Thurman, but just trying to understand your inventory. Obviously your inventory days came down hard this quarter because of your revenue growth. How should we think about inventory in relation to the revenue decline in the March quarter?

Thurman Case

Well, given the fact that we will be pushing inventory out as we bleed off and sell off inventory that we had already built, we’ll also be taking on, begin the process of taking on inventory as we prep for our fiscal year 2014 needs – customer needs from what we can see now. Right now I think the best way to look at our inventory at the end of Q4 is probably flat with some additional build prepping for the year.

Tore Svanberg – Stifel Nicolaus

Okay. And Jason you mentioned in the shareholder letter and also in your prepared remarks that you are now starting to sample some catalog products to, I think in your letter, you even said some Tier 1 headset makers. Can you just elaborate a little about – I mean is that something that could potentially be quite meaningful this year?

Jason Rhode

I think it’s very meaningful. I can’t elaborate on it too much, because we’re shipping the product – we haven’t announced – into a customer that hasn’t announced their product. So, we don’t want to get the horse ahead of the cart, as it were. But, obviously that’s something that we worked on long and hard to develop a catalog portfolio of products that other mobile phone manufacturers can use. And obviously it’s not going to completely diversify the company overnight, but it’s a good step in the right direction. And it highlights that manufacturers out there are valuing the technology that we bring to bear to improve the voice experience on the phone. There’s not that many companies that are differentiating on audio performance and we’ve always done very well in that regard. And our recent foray into helping our customers differentiate on voice is a much more broadly applicable set of technologies. So we think it’s a meaningful first step in a great direction.

Tore Svanberg – Stifel Nicolaus

Great. Just one last question. In the past you’ve sort of put some parameters and numbers on your progress in LED lighting. Would you care to comment on how that business could potentially be here in calendar 2013?

Jason Rhode

Yeah, certainly. FY 2013 was really more about getting our products into the market and getting design-ins and design wins. We would expect to see FY 2014 be more meaningful from a revenue base. This is the first time in a number of years where we’ve had a meaningful push into sort of a traditional analog inch-deep mile-wide kind of a market, and that type of thing takes a lot longer than some of the very explosive growth portable audio kinds of businesses that have driven our growth in the past few years. So we expect to see additional manufacturers and additional SKUs hit the shelves as early as this quarter and a significant number of them over the course of FY 2014. We expect FY 2014 to be much more about revenue than FY 2013 was; and more importantly just continue to solidify our share of the market and our share of the top tier accounts.

Tore Svanberg – Stifel Nicolaus

Sounds good. Great job, guys. Thank you.

Jason Rhode

Thanks, Tore.

Operator

Thank you, sir. Our next question comes from the line of Blayne Curtis with Barclays. Please go ahead. Your line is open.

Blayne Curtis – Barclays

Hey. Good afternoon, guys. Just a question on the gross margin, Thurman. You came in a little bit lower but obviously the mix is well skewed to portable and your major customer. Can you talk about, is this now the new level? I know you had to give some volume discounts on your new products. Can you talk about, is this now a mix of new versus kind of where it is going to be and is this the new base that you guys can work off of going forward?

Thurman Case

Well, I mean that’s – we’re – the guidance that we give is 50 to 52 for the next quarter. And you look at where we’ve come over a year; we’ve basically doubled our revenue. And so a lot of this is mix. We have different levels of content. We have different numbers of products in with some of our other customers. And so, when you look at that, you had different – certainly different margin levels and margin numbers for the different products that you have. And with that kind of mix change towards that, I think we’re looking at, at least for the – for next quarter for sure, we’ll talk about that more. To be at that 50% to 52% range, we’d also note that we’re very focused on growing our operating profit and although we’re very cognizant of where we’re at on our margin levels, we’re also keeping an eye on driving revenue growth and driving operating profit up also. So we take a look at those factors also when we’re looking at new product opportunities and new customer opportunities.

Jason Rhode

So just to – and just to elaborate on that a little bit, from my perspective as a non-financial person, our margins can move up and down a point or so on a quarter for a variety of reasons, business conditions and mix and everything else, and it’s relatively meaningless from a overall company point of view, despite how rapid on the axle the financial community seems to get about it. So as Thurman said, we’re much more focused on driving our operating profit over the long-term. And as he pointed out, we’ve sort of doubled our revenue in the last year in exchange for two points of margin, which is a trade-off we would take at least one more time.

Blayne Curtis – Barclays

Definitely. So, the – kind of following upon – Tore asked about this a little bit, but definitely more commentary about diversification, new customers, leveraging similar parts and definitely you’re mentioning catalog parts. So I was curious about just how much effort it requires on your side to get this revenue kind of? Is it more back-half loaded? Or is it more next year, kind of when you’re thinking about you get some more material revenue and then, any progress on kind of more custom work with larger SKUs?

Jason Rhode

Yeah. So, I mean, obviously we hope it is something that continues to grow, so we would expect it to get bigger over the course of the year and then into the following fiscal year. Mobile phones are pretty complicated devices, there are lots of regulatory approvals and all that sort of thing, so once we start shipping into a customer, there’s a pretty big delay before they actually start shipping their products in most cases. But you know it is a really good area where we can continue to build now that there is this additional focus we’ve got on the voice experience that enables us to help our customers differentiate that as a platform that’s a lot more scalable across multiple customers.

It remains the case that it is difficult to predict who’s going to have the next big thing in the mobile space and it is difficult to find companies that have the vision that go out far enough that are willing to partner on custom developments, but in most of those relationships in the past for us, the first step has been to get in with a catalog product or a minor variation of a catalog product to really get the relationship off to a good start and then once they see what we can do, hopefully we can expand on that relationship. So both from a diversification of revenue point of view, from a valuation of our technology point of view, as well as potential harbinger of things to come with additional custom products for other folks, I think it’s very good sign and a good step in the right direction.

Blayne Curtis – Barclays

Thanks. And just a final one for Thurman, you stepped up your OpEx quite a bit to get all these new products out, which you did very successfully. You’ve actually moderated the OpEx growth the last couple of quarters. When you look out into next year, do you need to continue to invest or you see these smaller steps as more of the path?

Thurman Case

Well, we need to continue to invest. Again, that’s one of our biggest challenges though, is to be able to invest as much as we’d like in the R&D. Sometimes we can’t get there, because we can’t bring on enough people. But we still expect our operating expenses to continue to grow and we’ll grow them as quick and as fast as we can, but most of that any time that we see an uptick in a quarter, it’s going to be normally associated with product development expenses and R&D expenses where we’re trying to get products out the door, get development done and get new people onto go after new projects and try to address more and more opportunities if we can. So you can expect that to grow. It’s hard to tell you exact rate, but it should be growing at a reasonable rate through the year next year.

Jason Rhode

Yeah, Blayne to put a different spin on it, we definitely would like to continue to add 20 to 30 some odd people per quarter on an average basis. We’re, at this point, a relatively small company with a relatively large amount of revenue and we need the company to grow into the revenue very quickly, because we obviously want to continue to grow the revenue off of a new, much higher base. It remains the case that for every development we kick off, we have many that we wish we could staff, which is a wonderful position to be in. Actually this week, we’ve had our extended sales team, the bulk of them in for a sales conference and across the board, every region, our sales people have opportunities that in every case we wish we could capitalize on. And the thing that’s holding us back is not technology or opportunity or anything else, it’s simply being able to staff those up to develop the products in addition to the things we’re already committed to doing, so in summary a very fine problem to have.

Blayne Curtis – Barclays

Great, thanks, Jason.

Jason Rhode

You bet.

Operator

Thank you, sir. Our next question comes from Vernon Essi with Needham & Company. Please go ahead, your line is open.

Vern Essi – Needham & Company

Thank you very much. And I would echo my sentiments on the gross margin, it’s nice to see that growth and keep that at a relatively stable level. In terms of – and I just want to follow on too, I guess on Tore’s and Blayne’s questions around the – I guess, this other smartphone customer you mentioned, or handset customer you mentioned in your prepared statement here. Jason, are you insinuating this is a – basically a general part that could evolve into a custom part? And is there any sort of profile you can give us about this customer in terms of will this lead to other SKUs with them? Or how that’s moving along in terms of behind the scenes?

Jason Rhode

Well, I definitely don’t want to tip the hat of who we’re talking about. But in general, a huge percentage of the value of our catalog product business is to establish ourselves with a new customer and put ourselves on a footing where we can develop that into a partnership where we’re able to develop new custom product. As we’ve talked about many times in the past though, the economics of that can be difficult. It costs us $3 million to $5 million, or in the case of a highly integrated product, even more million dollars to develop a new part. And so, we have to ship quite a lot of units in order to warrant a custom development.

So catalog products can be a good opportunity for our customers to feel us out and see what our capabilities are, see what our support is like, are we able to deal with changes in forecasts or technical support or what not. But it’s also an opportunity for us to feel out, is this an account that knows what it means to partner for the long-term, which we believe delivers much better results for both parties. And are the volumes going to really shake out? We’ve had many opportunities over the past couple of years to develop custom products for various tablets and I’m proud to say we passed on most of them, because most of those products haven’t shipped enough units that would have warranted the development effort.

So it’s definitely the potential first step. Obviously best case scenario is we develop just as meaningful a business with catalog products that we can sell to many customers. That’s a – certainly a lovely turn of events when it happens. But the mobile phone space is such that we really think that if you find a customer that is capable of thinking several years in advance and partnering with us that we can jointly achieve a much better effect through developing a custom product together.

Vern Essi – Needham & Company

Okay. And then just sort of a – in sort of the same realm here, the other audio, and I always ask this question, it was down about 10% year-over-year. What is sort of happening to that bucket of parts? Are you pruning some back? Are you becoming more focused in these areas such as the one you were just talking about to sort of concentrate more effort in that area? I’m just trying to figure out what sort of happened to that product line over time, or just -

Jason Rhode

Actually other audio was year-over-year about flattish. It declined on a sequential basis, which is typical for the December quarter. You know, it is definitely the case that we’re not investing as heavily in areas like home audio, for example. It’s certainly not for lack of products that I believe should be in the market; but our customers for the most part as yet haven’t dreamed up anything super amazing for the home that we believe would drive meaningful growth in the market.

Automotive remains a key area of interest for us. We’re investing there as we see opportunities that we’re able to staff and justify the expense. We think that automotive, as high end entertainment permeates down the product line, from the top end down into even the most basic models of cars, we see a significant amount of growth in the kind of electronics that we provide to the automotive market. So it’s still a slow-moving market. It makes it very important to pick your customers and opportunities carefully, especially given our resource constraints that we’ve got. But that’s an area we continue to emphasize, and then, of course, more of everything in mobile.

Vern Essi – Needham & Company

Okay.

Jason Rhode

In particular the voice – in particular things that are driven by voice. We’re seeing a lot of opportunities in voice interaction initially with mobile devices, but over the long term I think that a lot of those technologies are going to permeate other areas, whether it’s automotive or home or you name it. We’re entering a phase where the field of being able to interact with your things via your voice is just going to be explosive, I think.

I think it presents a tremendous amount of opportunities which could be as simple as A to D conversion, more channels of microphone input for example or it can be a much more sophisticated signal processing solution, noise cancellation, noise suppression, echo cancellation, things like that. And it’s just unique – it positions us uniquely to really be able to serve those opportunities well because it’s exactly in our wheelhouse.

Vern Essi – Needham & Company

Okay. And my last question here just to go back to – and I’ll try to go about this as delicately as possible, your largest customer, I sort of do some simple math on an average basis, your content’s roughly up some 140% year-over-year on a smooth sort of average basis. And I – regardless of that number, it’s obviously huge. What I’m wondering is if we go out another year or two, presuming there are no socket losses, should we anticipate further incremental gains, I mean obviously not to that same magnitude? Or are there scenarios where that might actually reverse; even though your revenue could grow your dollar content may be going down?

Jason Rhode

So, yeah, so it’s a really good question. Over the next handful of years we see as much opportunity to grow our content as ever. We’re engaged in a ton of new developments in portable audio. As I said, this opportunity to interact via your voice with stuff, starting in mobile is tremendous. So, we see a ton of opportunity to continue to grow our content, our importance. Now on an individual part-by-part basis, sometimes we’re able to increase our ASPs as we integrate passive components or integrate new features, eliminate other issues – other passive components on the board for our customers, so we can help their bill of materials go down, and in best case, achieve an increase in our ASP. Sometimes that’s an opportunity, other times it’s not and we need to do a good job of making our product more cost effective, et cetera. But that’s just – that’s the name of the game. It’s kind of the – what was that book, a long time ago, Sacred Cows Make the Best Burgers, you want to replace your own products before somebody else does. So that’s all just a healthy part of our business and overall we see just a tremendous opportunity to continue to increase our audio revenue.

Vern Essi – Needham & Company

Okay. That’s helpful. Thanks a lot Jason.

Jason Rhode

You bet.

Operator

Thank you, sir. Our next question comes from Bobby Burleson with Canaccord. Please go ahead, your line is open.

Bobby Burleson – Canaccord

Hi, thanks for taking my question. Congratulations on a great quarter.

Jason Rhode

Thanks, Bobby.

Bobby Burleson – Canaccord

This is for Jason, I guess. You know you showed remarkable ability to forecast, I guess, in terms of how you described what might happen overall for fiscal 2013 in the second half, I think we’re spot on to that number. I am wondering, it seems like you have decent six month visibility, any sense of the amount of volatility we might expect on the revenue line beyond March? I mean obviously it’s coming down pretty hard, and I’m wondering whether or not that there is any early indications that there could be more of a V-shaped recovery or more volatility to come, perhaps on the positive side, beyond March?

Jason Rhode

Well, I think that’s certainly possible. You know, like I said earlier, all we can really do is take the forecast that our customers give us, which do go out a good long ways. We try to apply some conservative judgment to that so that we don’t set ourselves up for being a big disappointment. But we – as far as what the market uptick of our customer’s products are going to be, we really don’t have a good crystal ball for that, it goes out more than a quarter or so. I will echo the comments of somebody with a lot more information at their disposal than I do, that I think that by and large, you see so many rumors and comments all over the web and all over the talking heads on TV, et cetera, that have all got one little snippet of data out of what is a very, very complicated situation and make it out like the sky is falling or everything’s going to go gangbusters, and I would just like to echo that the comment that if you’re making investment decisions based on rumors and whatnot that have been reported in the media or on the web anywhere that you’re, in my opinion, much more likely to be wrong than right.

Bobby Burleson – Canaccord

Okay. Great. And I guess the other one would just be on the tax rate, at some point here it resets to a much higher rate, at least from the income statement. I’m wondering whether or not, what opportunities there are to address that? What your options are, if any? Any kind of update on how we should think about taxes at that reset kind of the 35% period?

Jason Rhode

Well, I mean – I think as we said previously, we’re in the process of evaluating options we could have around maximizing the effect of the tax rate. But I think from a realistic standpoint and where we will be when and whatever time that we begin to become a taxpayer, that from a modeling standpoint which is I think one of the reasons you’re probably asking about that is it probably should be looked at as a 35% tax rate at that point in time. We’ll continue to look for incremental improvements to that and we’ll know better as we go through the process, which we’re pretty deep into now in terms of evaluating what we can and cannot do. And we’ll try to be forthcoming with that if we have different information from that, but at this point in time that’s really the best that we can say.

Bobby Burleson – Canaccord

Okay. Thanks. And in terms of forecasting ability, as you guys are more successful and your customers are and you’re diversifying, let’s say, not into additional customers but just into more SKUs, all of which have differing prospects for success, are you finding it more difficult to forecast? Or do you think there will be a smoothing effect there? What are your thoughts about how you address the challenge of having so many different products out there in the market?

Jason Rhode

Well, one, we try not to get too hung up on it. We’re fairly conservative bunch and the reality is we win whatever we win a year in advance and the next quarter or so is entirely out of our hands. So it is an exercise of forecasting, there’s nothing we can really do to drive it. But if we take the data our customers give us and you’re right, to some extent the law of large numbers should – the more products you get out there, there should be some level of smoothing effect. But again, that isn’t the metric that we use to judge whether or not we’re being successful in our endeavors because it’s largely out of our control. So, we try to be conservative at it, and then really try to look at a lot of other metrics to really gauge whether our business is headed in the right direction or not. Are we winning all of the sockets that we know about? Are we passing on the right ones and capitalizing on the right ones, et cetera? And that’s really where the value of the company lies.

Bobby Burleson – Canaccord

Okay, thanks. Congratulations again for a great quarter.

Jason Rhode

Sure. Thanks.

Operator

Thank you, sir. Our next question comes from Andrew Huang with Sterne, Agee. Please go ahead, your line is open.

Andrew Huang – Sterne Agee

Thanks. I was wondering if you could just give us a little more color on the kind of new program when you’re talking about with Tier 1 handset maker. I think you mentioned that right now it’s a catalog part, hoping to become a custom part. But I was just curious one, about the functionality, what the product actually does, your product? And then two, in general, like what kind of an ASP a chip like that would have?

Jason Rhode

Yeah, I’d rather not comment on the ASP front, because again, we’re ways out from the thing actually shipping. And products – especially catalog products tend to have a pretty wide range of ASP for an individual device, depending on who is buying it. So if I give you a number too high then that’s going to screw you guys up and if I give you a number that’s more accurate, it might cannibalize some of our other opportunities out there with the same device. But basically it’s a very low power, A to D converter for multi-microphone applications. So, this is again target an improved voice experience in the phone.

Andrew Huang – Sterne Agee

Got it. And then your comment on the tax rate remaining below 4% through fiscal 2014, does that mean – are you kind of indirectly giving full year pre-tax income guidance by giving that number?

Jason Rhode

I don’t think we said that.

Andrew Huang – Sterne Agee

Okay.

Jason Rhode

So all we’ve said on that front is that we’ve given you the amount of the deferred tax asset that’s remaining and then you can run that against your model and figure out when you think it runs out. So no, we’re very deliberately not giving you guidance inadvertently through that forecast.

Andrew Huang – Sterne Agee

Okay, got it. And then I guess one last question on the share repurchase, it looks like you guys did buyback some stock during the quarter, I guess, during the December quarter. Are there any restrictions? Or what are the restrictions in terms of when you cannot continue to do that program?

Jason Rhode

Well, our general view is that we should be pretty conservative from an implementation of a buyback point of view. We are opportunistic about it. When we believe that the fundamentals are really disconnected from the sentiments that’s out there in the market, we see that as a good opportunity, which is why we announced and then executed part of the buyback. In terms of when during the quarter, there are certain things that are legal restrictions and other things that are just kind of what we view as optical restrictions that, we don’t, like for example, if we’re as a company, we don’t think it’s appropriate to be buying right through our earnings call, for example, so we try to stay away from the end of the quarter and all that. Yes, we’re not in any fundamental great hurry about it either. But we get a lot of questions about use of cash, dividends and investments and acquisition, et cetera, et cetera.

It remains the case that we would love to find an acquisition that made a lot of sense for us and furthered our strategy, accelerated us more quickly than we might otherwise do, but that, as we’ve discussed in the past, is often a very perilous path. You have to be very mindful of cultural fit, geographic fit, technology fit and everything else. And once you get through all that and then call the list further to just a list of quality companies, it’s pretty rare to find anything that works. You know, we don’t – at this time we don’t feel like we’re a great fit for dividends, that one way to use our cash that is in the interest of our shareholders has been to opportunistically implement a buyback the way we’ve done in the past to a pretty great effect. So, that gets the bulk of your question.

Andrew Huang – Sterne Agee

Okay. And then if you don’t mind, I just one last question on LED lighting. I think in the past you’ve talked about a two-string driver, and I think the idea there is that you can do color mixing with two different color LEDs. Do you expect to ramp that product in this calendar year, calendar 2013?

Jason Rhode

Yeah. There actually should be a product on the shelf sort of any day now that’s using that. And then over the course of the calendar year, we expect to see several more SKUs hit the shelves.

Andrew Huang – Sterne Agee

Okay, great. Thanks very much.

Jason Rhode

You bet. Thanks, Andrew.

Operator

Thank you, sir. Our next question comes from Christopher Longiaru with Sidoti & Co. Please go ahead, your line is open.

Chris Longiaru – Sidoti & Company

I’ll echo my congratulations, guys.

Jason Rhode

Thanks, Chris.

Chris Longiaru – Sidoti & Company

So I guess, with all these changes, and you talked about your need to hire I guess as aggressively as you possibly can. Can you just revisit what your long-term model is for those expenses and if it’s changed in your view at all or you have a plan to change it in the near future?

Jason Rhode

Well, we’ve said historically that we expect that our model is something like 20% R&D and 15% SG&A. I think certainly the economies of scale as they get bigger should lower that SG&A number somewhat. We haven’t refined a real precise model for exactly what it should be. Obviously we’re significantly under that for the R&D number as well. In fact, so significantly that we haven’t bothered to figure out exactly what the right percentage is because we’re such a long ways away from it.

Chris Longiaru – Sidoti & Company

Okay. That’s helpful. And then just in terms of the seasonality here, because I think somebody else asked before about your other audio business being down sequentially and kind of flattish year-over-year. Is there – with your movement more into consumer, is there kind of a more normal seasonal pattern that you’re going to follow? Especially the way that’s played out in the March quarter with a much bigger December and then a much lighter March, do you think this is kind of the new normal?

Jason Rhode

Well, I think to some degree we’re a seasonal story, but probably to a greater degree, it’s more of a – there is a large product cycle obviously that’s right on top of that and those two are tied together somehow, but it also depends, somebody got something new to launch in a particular quarter or another. So it does – I feel your pain. It does make it from your perspective probably difficult to model through the course of fiscal year and we don’t always have great visibility into what you might expect for next year’s fiscal Q4 and next year’s fiscal Q3. At this phase of game, we just make sure we’re keeping track of the design wins that are ultimately going to drive whatever the numbers might be.

Chris Longiaru – Sidoti & Company

Okay, so just I mean, it’s typically been 10% to 15% down in the March quarter, so I mean is that fair to – I mean not that you have an idea of what you’re going to ship next March, but don’t see any major reason to change that expectation at this point?

Jason Rhode

I mean, yeah, if you’re trying to model next year’s Q4, that’s probably as good a model as any.

Chris Longiaru – Sidoti & Company

Okay.

Jason Rhode

It’s – I think if you look back over a number of years, it’s a very fair amount...

Chris Longiaru – Sidoti & Company

Yeah.

Jason Rhode

Just what may or may not have gotten launched in the January quarter.

Chris Longiaru – Sidoti & Company

Okay. Thank you, guys. I appreciate it.

Jason Rhode

You bet. Thanks, Chris.

Operator

Thank you, sir. Our next question comes from the line of Rick Schafer with Oppenheimer. Please go ahead, your line is open.

Shawn Simmons – Oppenheimer

Hey, guys. This is Shawn Simmons calling in for Rick. Congrats on a good quarter here and most of my questions have been answered, but I just wanted to touch on a couple of topics no one has really touched on. So the power meter business, it looks like that was weak again this quarter, I guess, what are you guys expecting for next quarter? And then maybe broader, just over the next kind of 12 to 18 months there, do you see any opportunity to expand your customer base or penetrate further within your largest customer there?

Jason Rhode

Yeah, we do. I think there has been to some degree, some level of a hangover from the whole Smart Grid thing that was so red hot a few years ago. We’ve made good progress with broadening out our business with our largest power meter customer to be a little more focused on worldwide success, rather than just North America. Power meters is not the fastest moving market in the history of the world, just because the products have to be designed and then certified and then field tested and then blah, blah, blah. There is a lot of steps in that and it takes our customers a long time to expand their business as well.

So it’s been in a little bit of a lull over the past few quarters or so. We don’t see that going away immediately, but in the long-term, we’re actively engaged and successfully winning new sockets that we expect to both expand our business with our largest customer in the metering space and also diversify that to other customers as well. Long-term we think it continues to be a good market for us to be here.

Shawn Simmons – Oppenheimer

Okay, great. And then obviously with the move to your headquarters for the motor control team, can you give us any update there? Are there any kind of particular applications that you guys are having success in and when should we expect meaningful revenues from that group?

Jason Rhode

That’s – yeah – we’ll let you know when we see it. It’s still pretty far out, it’s more of a technology investment at this point and that is part of the team’s challenge, is to go figure out where exactly to deploy this technology that we think is pretty compelling. What we’ve developed is some technology around a sensorless, brushless DC motor that has some pretty unique properties and solves some neat problems.

The challenging thing there is that it’s a pretty fragmented market and it’s not necessarily the case that just because we have some amazing technology there’s a good market opportunity or good business to be built around that. But that’s what the team’s engaged on. It certainly seems like there is enough demand and enough real value that is represented by the technology we’ve developed that there should be a business in there, and – so, that’s what the team’s working on.

The neat thing is that the folks who moved over from Tucson – I mean, the reason we moved them here is they’re amazing people, very talented and fit right in with the mission that we have for Cirrus overall, so there is very good opportunities for them regardless.

Shawn Simmons – Oppenheimer

Okay, great. Thanks, guys.

Jason Rhode

Sure. Thanks, Shawn.

Operator

Thank you, sir. (Operator Instructions) We do have a follow-up question from Andrew Huang with Sterne Agee. Please go ahead. Your line is open.

Andrew Huang – Sterne Agee

I apologize if this question has already been asked, but for the last two quarters you’ve kind of given us very nice guidance for the current quarter and then a little bit of color for the out quarter. So do you have any commentary at this point for the June quarter revenue?

Thurman Case

Yeah. We really – we don’t have any commentary we want to share at this point. The past couple of quarters we had things that we felt like if we didn’t at least give you a little bit of a clue that people might have gotten severely off in the wrong directions. We don’t see anything really remarkable going on at this point. The business is kind of steadily moving along, so we think you guys will probably get it in the hump without our help on that.

Typically – historically our policy has always been to guide the current quarter only, and that was just due to the kind of real remarkable events over the past couple of quarters that we got a little ahead of ourselves to try to help clue people in.

Andrew Huang – Sterne Agee

Okay. Thanks very much.

Jason Rhode

Sure. Thanks, Andrew.

Operator

(Operator Instructions) Presenters, there appears to be no additional questions on the phone line. I like to turn the program back over to Chelsea for any additional remarks.

Chelsea Heffernan

Thank you, operator. We’ve had a few questions submitted via e-mail. These were addressed in the questions we received from our analysts, so at this time, there are no more questions.

Jason Rhode

Well, great. Let me close by saying that Q3 was a great quarter for our company. We are very pleased with our results. FY 2013 is shaping up to be a year of many milestones for Cirrus Logic, as we should nearly double revenue and significantly improve our operating profits.

Longer term, we are excited about our opportunities with both new and existing customers in audio and energy where our technology and engineering expertise uniquely position us to be an industry leader. If you have any questions that were not addressed, you can submit them to us via our Investor website. I’d like to thank everyone for participating today. Good bye.

Operator

Thank you, presenters. Again, ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful day. Attendees, you may log off at this time.

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