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PMC-Sierra (NASDAQ:PMCS)

Q4 2012 Earnings Call

January 31, 2013 4:30 pm ET

Executives

Jennifer Gianola

Gregory S. Lang - Chief Executive Officer, President and Director

Steve Geiser - Chief Financial Officer and Vice President

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

William Harrison - Wunderlich Securities Inc., Research Division

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Welcome to the PMC Fourth Quarter 2012 Earnings Conference Call. My name is Tricia, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I would now turn the call over to Jennifer Gianola. Please go ahead.

Jennifer Gianola

Thank you, Tricia. Good afternoon, everyone, and thank you for joining the call. With me today are Greg Lang, President and CEO; and Steve Geiser, Vice-President and CFO. Greg will begin the call with a discussion of the business and key highlights from the fourth quarter 2012 and Steve will then discuss the financial results for the fourth quarter of 2012 and the business outlook for the first quarter of 2013.

Please note that our fourth quarter and full year 2012 earnings press release was disseminated today via BusinessWire after market closed, and a copy of the release can be downloaded from our website. Before we begin, I would like to point out that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, PMC's limited revenue visibility due to variable customer demands, market segment growth or decline, customer concentration, bookings rate, changes in inventory, supply constraints, foreign exchange rates, volatility in global financial markets and other risk factors that are detailed on the company's SEC filings. Actual results may differ materially from the company's projections. For further information about these risks and uncertainties, please read the company's SEC filings, including our Form 10-K and 10-Q.

Note that PMC undertakes no obligation to update any forward-looking statements. Please note that for each of the historical non-GAAP financial measures mentioned on this call, a full reconciliation to the most comparable GAAP financial measures is included in our press release issued today. In addition, a GAAP to non-GAAP reconciliation of financial measures noted in our outlook will be posted to our website under the Financial Reports section of the Investor Relations tab. [Operator Instructions]

Thank you, and I will now turn the call over to Greg.

Gregory S. Lang

Thank you for joining us today, and welcome to our fourth quarter and full year earnings call. With me today is Steve Geiser, our new CFO, who joined us a couple of months ago. We're excited to have Steve on the team. He's a seasoned veteran of the semiconductor industry and has broad experience in start-up organizations as well as large complex environments, which allows him to bring a new perspective to PMC. Steve has extensive financial experience in technology and will be immediately additive to our management team.

And with that, I'll move on to our results. We're pleased to report that our fourth quarter revenues were $129.4 million, at the high-end of our outlook for the quarter. Our non-GAAP EPS was $0.12 above the outlook of $0.10. Non-GAAP net income was $25.1 million, up 18% sequentially from the third quarter. This improvement was due to improved gross margin and over $3 million in reduced operating expenses. Q4 was a low point for tape outs and employee compensation, and Steve will cover this a bit more later.

Now I'll give you a brief review of 2012 and our strategic priorities for 2013. 2012 was a challenging year due to macro headwinds, weak carrier spending the and slow ramp of OTN in Metro Networks. But we executed well operationally and continued to deliver best-in-class products and focused on shoring up next-generation design wins with our key customers, which will provide excellent leverage when the recovery takes place. Considering the design wins underway at our customers, we believe we're positioned to gain share in all of our core investment areas: storage, OTN, wireless backhaul, and radio heads.

Today, com infrastructure remain sluggish but encouraging signs are emerging. The LTE CapEx investment cycle is expected to drive com infrastructure over the next few years. As covered in numerous press announcements, several large carriers are on track to increase their spending in 2013 and beyond, including AT&T, China Mobile and most recently, Deutsche Telekom. Deutsche Telekom plans to invest almost $5 billion in T-Mobile's USA 4G LTE network rollout starting in 2013. In this environment, we'll continue to focus on the items in our control while we wait for the end markets to recover. We'll tightly manage our expenses without major compromise to long-term growth, ensure our resources are invested in the areas that will enable us to grow and winning the sockets that count.

Now with that backdrop, I'll move on to give you an overview of the results for Q4. Our fourth quarter revenue was down 2% sequentially. Storage revenues grew a bit over 1% as expected and optical was down 28% due to continued SONET weakness, while the Mobile segment was up 24% as backhaul bounced back to more reasonable levels. At the top level, the storage segment was 70% of our total revenue, up from 68% in Q3, optical revenue came in at 14% of the total, down from 20% last quarter and mobile revenues came in at 16% of the total, up from 12% last quarter. And for those of you tracking our legacy percentage of our business, it was 7% of total revenue in Q4.

Now I'll discuss a bit more detail on each market segment starting with storage. Our storage market segment was up 1% versus last quarter due to new 6-gig platforms ramping and good results from our new Series 7 family of adapters. Our storage business made very solid progress on a number of fronts in 2012, including starting the year by shipping the world's first 6-gig SAS RAID-on-Chip controller to support PCI Express Gen3, enabling double the performance of our nearest competitor. In conjunction with this milestone, we also announced that HP, the world's largest server vendor, standardized on this product across their entire Romley-based reliant [ph] server and Smart Array adapter product lines. We introduced our next generation of Adaptec RAID adapters, or Series 7 product line, that offers the industry's highest port count density and highest performance on the market. Leveraging our highly integrated RoC silicon, these adapters are able to fit in a smaller form factor and use less power than any competing solution.

Density, power and performance are key metrics for our data center customers and it's not surprising that multiple cloud data centers are either consuming Series 7 cards today or conducting evaluations now, citing the industry-leading density and power advantages as key criteria in their selection. During 2012, we also sampled a complete family of next-generation SAS controller and expander products that support the emerging 12-gig SAS standard. The newly introduced controller and expander product lines featured the highest port count density and performance offered in the industry, providing our customers with the ability to not only support double the performance of prior generation solutions but also reduce power per port in board space for the most dense cloud and data-centric designs. I'm particularly proud of the quality of these products, which was demonstrated in the first 12-gig SAS interoperability event last summer, where the leading suppliers from the industry gathered to test their solutions with each other. PMC was the only participant to bring both expanders and controllers to the event.

Design win traction further substantiates our leadership as we have secured the business of all of our major customers and expanded our share in several accounts. As many of you are aware, the adoption of 12-gig SAS technology will be influenced by the availability of solid state drives that support this new interface and take advantage of the performance that it offers. Earlier this year, we introduced the world's first 12-gig SAS merchant SSD controller, essentially delivering a complete 12-gig SAS solution from the controller in the storage array or server through our expanders and now to high-performance SSD controllers. Our SFM device delivers more than 300,000 I/Os per second in the 2.5-inch SAS SSD, and when paired with the industries higher performance protocol controllers, we can deliver a stunning 2.4 million IOPS in an 8-drive, enterprise-class flash subsystem.

Heading into this year, we look forward to helping our customers' 12-gig designs get to production, starting with early server launches later this summer. And as we begin the new year, our storage business is at the center of key big data trends and is well positioned to deliver leading storage solutions for next-generation enterprise storage data center and cloud services.

Now I'll turn to the optical marketing segment. The optical segment was down 28% in the fourth quarter versus the third quarter. This decline is due to weak spending environment and the declining legacy business, while our new OTN deployments haven't picked up yet. Inventory levels continue to remain low. We also saw weakness in our PON business, as Japan OEMs had a correction quarter. As I look back on 2012, we had several meaningful achievements within our optical business. In Q1, we announced the industry's first symmetric end-to-end 10-gig EPON solution for both optical line terminals and the optical networking unit. Japan appears to be ready to trial this new technology later this year and we are well positioned with NTT suppliers. In May, we announced our second-generation Metro OTN processors that enable packet-optimized metro optical networks. With PMC's HyPHY flex family, carriers can now seamlessly integrate 1-gig traffic from Carrier Ethernet directly over 1-gig OTN transport networks. And as our customers can leverage the highest integration in the industry, with speed time-to-market and reduce queue proliferation and power.

In September, we delivered the industry's first tri-speed converged Carrier Ethernet and OTN framer. The META 120-gig operates at a 120 gigabits per second and can handle Carrier Ethernet or OTN on any port, supporting 1 port at 120-gig, 3 ports at 40-gig, or 12 at 10-gig. It reduces chip count by 50% on high-speed interface cards on carrier ethernet routers and switches. It provides the industry's highest port density and the industry's only single [ph] chip tri-speed OTN solution.

Now onto the mobile end market segment where our revenues grew 24% versus the previous quarter, which is a nice bounceback to healthier levels. We attribute this increase to an inventory correction and early positive signs of carrier spending led by 2 of our largest backhaul customers. 2012 marked the third straight year of 50 or more design wins by the WinPath3 family with fewer than 25% of these reaching full production. Of these 50 designs in 2012, 25 of them were at 8 of the top 10 backhaul suppliers.

Lastly, we continue to focus our efforts on the large opportunity in remote radio heads. Last year, we introduced the industry's most integrated, lowest power radio transceiver chipset for next generation macro and small cell base station designs. We are making good traction with our customers and look forward to giving you further updates as 2013 progresses.

Next, onto our outlook for Q1 2013. As we look to Q1, the macro headwinds continue but there are some signs of stabilization. From Q4, the book-to-bill ratio was greater than 1.0 for the first time since the first quarter of 2012. We saw a pickup in December and after the holidays, we're seeing positive signs in January as well. So this is all good news. But keep in mind that Chinese New Year is coming in 2 weeks, so some advance bookings is to be expected. We need to see a continuation of this booking trend to believe that it's sustainable.

We expect Q1 revenues to be in the range of $123 million to $132 million. Considering today's backlog, we believe that both storage and carrier product lines will be roughly flat, up slightly or down slightly. And for storage, this is better than the normal 5% to 10% seasonality, supported by new 6-gig platform ramps and our new Series 7 RAID success. Today our business is focused on transforming networks that connect, move and store big data. And as you all know, data traffic and data creation continues to grow at a rapid pace. We believe the fundamental drivers for our main growth areas in storage OTN backhaul and radio head solutions remain firmly intact. Further, we believe our design win position in each of these segments will allow us to grow share over the next few years.

And with that, I'll hand it over to Steve for more details on the financials and our outlook.

Steve Geiser

Thanks, Greg. Good afternoon, everyone. I would first like to say that I'm very pleased to join the team at PMC, and look forward to meeting more of our shareholders and analysts.

I will now discuss our fourth quarter and full year 2012 financial results and comment further on the outlook for 2013. Fourth quarter revenue of $129.4 million came in at the high end of our outlook range, as Greg mentioned. In Q4, we had 2 customers that represent a greater than 10% of our revenues, calculated on a rolling 12-month basis, namely HP and EMC. Non-GAAP gross margin in the fourth quarter was 71.9%, slightly better than our outlook and 130 basis points higher than Q3's 70.6%, mainly due to changes in product mix.

Non-GAAP operating expenses in the fourth quarter were $68.7 million, this was approximately $2 million lower than our outlook. It is worth noting that, while the low level of operating expenses in the fourth quarter was largely anticipated, there were a couple of significant factors which caused expenses in the period to be atypically low. First, personnel-related expenditures were unusually low driven by a combination of reduced accruals for variable compensation as well as increased vacation activity around year-end holidays. Second, tape-out related expenses were minimal and down substantially from the third quarter. If the impact of these 2 factors were eliminated, normalized operating expenses in the fourth quarter would have been approximately $73 million to $74 million. Q4's non-GAAP operating margin of 19% improved over Q3's operating margin of 16% on slightly improved gross margins and lower operating expenses.

Non-GAAP tax provision was a recovery of $0.1 million compared to a $0.8 million recovery in Q3, mainly due to a change in the mix of income across our foreign subsidiaries. Non-GAAP net income for Q4 was $25.1 million or $0.12 per share on a diluted basis compared to $21.4 million or $0.10 per share generated in Q3. Q4 GAAP diluted net income per share was $0.05 versus a net loss per share of $1.31 in Q3. The change is mainly explained by the third quarter $276 million write-down of goodwill and intangible assets. The items reconciling GAAP to non-GAAP net income for Q4 are as follows: $10.8 million in amortization of purchased intangible assets, $6.3 million in stock-based compensation expense and $3.1 million of income tax-related adjustments and certain other items as described in our press release issued today.

Turning to the balance sheet. We ended the quarter with $273 million of cash and cash equivalents, short-term investments and investment securities, an increase of $10 million from Q3. These figures are net of the $68.3 million face value of our convertible notes, which we retired in full in October 2012. This $10 million increase relates primarily the strong cash flow generated from operations of over $28 million, partially offset by $9 million of investing activities for IP purchases and capital expenditures and $9 million for repurchases of capital stock, net of amounts generated from employee equity programs.

I would note that we completed both our previously announced $160 million accelerated stock buyback program and our $40 million employee equity stock buyback program during Q4. Our net inventory at the end of Q4 was $24 million, approximately $4 million lower than the prior quarter as inventory levels continued to be tightly managed based on current demand. Net inventory turns improved in Q4 and were in our target range at 6.1 compared to 5.7 in Q3. Q4 ending deferred revenue, which relates to inventory at our distributors, was $8.1 million, about $4.5 million lower than Q3, reflecting leaner than typical levels of distributor inventory. Overall, our inventory, including net distributor, remains well managed. Lead times from our foundry partners remain stable and we have adequate wafer supply to meet our forecasted demands.

In summary, we view our fourth quarter results favorably, as we achieved our outlook targets in this continuing challenging environment. For the full year 2012, we reported revenues of $531 million, which was down 19% from 2011 annual revenue of $654 million. Non-GAAP gross margin was 70.5% for 2012, up from 69.2% in 2011 due to favorable changes in product mix and continued focus on manufacturing costs. Non-GAAP operating margin for 2012 was 15% versus 22% for 2011. Obviously, the poor macroeconomic conditions impacted our top line for the year, but we maintained our discipline on operational cost to partially offset that, and positioned us to leverage our cost structure when markets recovered.

On a non-GAAP basis, we generated $0.38 net income per share on a diluted basis compared to $0.60 in 2011 based on the factors just discussed.

Now turning to our outlook for the first quarter of 2013. As Greg mentioned, we estimate the potential revenue for PMC for Q1 is in the range of $123 million to $132 million. This takes into account current levels of demand and our expectation of booking rates through the balance of the quarter. Judged backlog at the start of Q1 stood at $89.4 million, this implies turns of approximately 30% from the beginning of the quarter to reach the midpoint of our revenue outlook. This level of turns is consistent with turns achieved in the fourth quarter of 2012.

On a non-GAAP basis, we expect our overall gross margin percentage in Q1 to be approximately 71% to 72%, roughly consistent with the prior couple of quarters. Non-GAAP operating expenses in Q1 are expected to be in the range of $75 million to $77 million. This is approximately $2 million to $3 million higher than the normalized expense level of $73 million to $74 million, which I described earlier, mainly due to the annual reset of employee benefits at the beginning of the calendar year. We expect non-GAAP net interest income to be about $0.3 million, which is primarily net interest income from our cash position. We expect our non-GAAP tax provision in Q1 to be approximately 0. As a reminder, tax expense can be impacted by a number of variables associated with our ASC 740 liabilities including, but not limited, to a change in foreign income and product mix.

Regarding share count, we ended the fourth quarter with a diluted share count of approximately 203 million. At the end of Q1, our diluted share count is expected to be approximately 205 million. The implied non-GAAP diluted EPS for the first quarter at the midpoint of our outlook range is $0.08. For those of you updating your models for 2013, we expect that gross margins will remain in the 71% range for the balance of the year. Non-GAAP operating expenses are expected to decline in the latter part of the year, going from the mid- to high-70s per quarter in the first half to the low- to mid-70s per quarter in the second half of the year. The second half reduction will be driven by our continued active management of operating expenses as well as the profile of tape-out costs and lower employee fringe benefits expense.

And with that, I will conclude and repeat that I am excited to join PMC. I'm very pleased with how we position ourselves financially and operationally for success in the coming year. We will now open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Jim Schneider from Goldman Sachs.

James Schneider - Goldman Sachs Group Inc., Research Division

I was wondering if we could just start on the carrier side for a second. Greg, I think you alluded to some initial positive signs on the carrier side. Where are those positive ore trends coming from? Is it geographically specific to China or is it broader than that? And then, what are you looking for in terms of signs after Chinese New Year to get you convinced it's more of a sustainable trend?

Gregory S. Lang

So Jim, a couple of things I would point to from the signs perspective is just number 1, the press activity that everybody has seen around some of the main biggest carriers in the world planning to do more aggressive LTE rollout, so that's China Mobile pulling it in or AT&T talking about spending more, Deutsche Telekom, et cetera. So that's one, but that's -- we all want to see that translate into orders. And I think the second part that I'd point to is we did have a nice pickup in Q4 in the backhaul front. I believe -- we don't have the direct or the precise data here, but I believe that's actually going into the North America market where there's some spending going on around LTE in general. So I think that's kind of what we're seeing right now early on. In terms of, what do we look for after Chinese New Year? The comment that I made there was really if we see at the end of Chinese New Year's kind of a sustained level of bookings where we're going right now, I think there is -- that's a -- that will be a very positive sign for us right now. The bookings do seem to be fairly well spread across both the storage enterprise as well as carrier parts of our business. So I would just look for continued health of bookings and have it not just be a, call it, a New Year phenomenon between Western New Year back in January, where people caught up when they came back and got a little bit ahead of it before the Chinese New Year. So that's what we're really looking for is more sustained goodness as we're seeing right now and then we get perhaps call for a stronger uptick.

James Schneider - Goldman Sachs Group Inc., Research Division

So that's helpful. And then just to follow-up on the storage side if we could. You're guidance there for being flattish, it seems to be surprisingly good especially considering some of your peer and your customer reports, which has suggested maybe some enterprise and data center softness into Q1. Can you maybe talk about whether you think that's a function of the overall market or do you think there's some new programs that you're ramping there? Or is it just the fact that inventories at your customers are very, very lean right now?

Gregory S. Lang

Yes, I think the -- maybe a combination of a couple of things. One is, to your point, Q1 is historically been a lighter quarter for storage business in general, somewhere on the order of 5% to 10%, I would say, would be quite normal. And we believe that this quarter's going to come in better than that. I think there's really 2 drivers for it. One is I think the inventories are in reasonable shape as far as we can tell right now with our customers, so we don't have a big correction or any issue like that to deal with. But we're also seeing some 6-gig platforms ramp up at some of the new customers that we've been talking about for a while, and that's giving us some uplift beyond what just general market ups and downs. And then secondly, along those same lines, we launched a new Series 7 adapter card that has a much higher density and performance than competing solutions, so that's getting quite a bit of good uptick right now at some of our data center customers. So it's just, I think, a combination of a few things we've been working on for awhile that are coming into play and helping offset normal seasonality.

James Schneider - Goldman Sachs Group Inc., Research Division

If I could just sneak one more in. Just in terms of the -- you've alluded to, in the past, your enterprise SSD design win with a lead customer, at what point will you be in the position to announce as who the customer is?

Gregory S. Lang

I'm not sure that I can tell you when we will announce it at this point, but you'll be the first to know.

Operator

Our next question comes from Sandy Harrison from Wunderlich.

William Harrison - Wunderlich Securities Inc., Research Division

So Greg, you talked about the remote radio head a little bit in your prepared remarks. If you could remind us sort of the target model there and what sort of successes you've had to date with that to the point that you can? I think, that's been an area of discussion out there in the market as far as the opportunity and what it could ultimately be, so if you could just maybe spend a little bit of time of reminding us that opportunity?

Gregory S. Lang

Sandy, so this is a new area for us that is -- one that I would say is in the design win phase. We announced 2 new products that we're sampling to customers this last summer. We think the market opportunity is something on the order of $0.5 billion, and this is our first real entry into this space. So our big challenge right now, and this is actually literally the position we're in today, is to go win some designs with these new products. We think that we have a very compelling value proposition by integrating a lot of what was, in the past, discrete analog devices, and we think that it's being received very well, it's being evaluated by all of the major radio head providers. And -- but right now our job is to get it over the goal line and get a -- our fair share of designs. So that literally is happening right now. These platforms, from a revenue standpoint, are going to be out in 2014 before we see real production -- maybe we'll see some early field trial type of production at the end of this year, but the revenue I would expect for 2013 will be modest, but picking up in 2014. So we can't announce platforms for our customers but we'll try to give some indication of how progress is going throughout the year and then when they start shipping and production, we can point out the ones that we've been designed into. So we're very much in design win phase right now.

William Harrison - Wunderlich Securities Inc., Research Division

Got you. And then a quick follow-up question. I think on the solid-state drive side, you've been focused mainly on SAS interface, which should be tied to more of the storage side of the market. Have you guys looked into or have plans to do anything on the PCI Express side? Or where do you stand on the product life cycle there?

Gregory S. Lang

Yes. I think it's fair to say that -- our belief is that there will be both the storage side that will be kind of SAS as well as some PCI Express solutions. Both, be it on the storage side and on the server side, we'll be probably be heavily transitioning to PCI Express over the next few years. So I think it's safe to assume that if we're going to compete in this business, we would go after both parts of that market. We have not announced the PCI Express product at this point, but outside of the interface itself and the protocol that comes with it, SAS versus PCI, a lot of the rest of the technology blocks are heavily leverageable between the 2 different areas. So that's something we would look to take advantage of. So no announcements yet, but it's probably a safe projection.

William Harrison - Wunderlich Securities Inc., Research Division

Got it. And then the last one, I mean, nice little range that you're looking at for Q1. Any thoughts of seeing some programs come online that you saw in Q1 continuing to Q2 or is visibility still pretty muddy at that point?

Gregory S. Lang

Are you speaking of -- on the storage side, like the new program ramps?

William Harrison - Wunderlich Securities Inc., Research Division

I'm just talking about in general, as you look sort of beyond the near-term.

Gregory S. Lang

Yes. I think 2013 will probably be characterized by 2 different but meaningful macro environmental things. One is if we can see some uplift on the economic side, the general economy, I think that will help -- business confidence -- help some of the storage spend. We're already seeing some positive signs there and we're also seeing some benefits and some sockets that we've won over the last couple of years. So I think on the storage side of the business is at a healthy level right now, we'd like to see it get back to bigger levels, but I think we'll need some tailwind from the general economic environment to do that. And then the other side is really characterized by carrier spending, and we see a lot of very positive signs out there. One that I didn't mention earlier, when Jim asked me about it, was we're also getting tugged pretty hard by customers to get some of the new products into production, so they can really use their platform. So there's a lot of activity, whereas you look back at 2012, you didn't feel that same kind of energy going on in the carrier space. So I'm cautiously optimistic this is going to be a meaningfully better year on the carrier side. But that's what I would look for out in Q2 and beyond is, do we see that pick up on the carrier side?

Operator

Our next question comes from Srini Pajjuri from CLSA Securities.

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Greg, the lumpiness in telecom last quarter, how should we think about it this year? Do you expect somewhat similar lumpiness or do you expect it to be relatively kind of flat to slightly up as we look out to the next few quarters? And also, if you can talk about what your expectations for the legacy business to do this year, that will be helpful.

Gregory S. Lang

Yes. So a good question. Some of the lumpiness is just the numbers of -- on the legacy business have gotten small enough that -- relatively small, couple of million dollars of changes is a big percentage, so that's one thing to keep in mind. But I would say that for this year, our -- what we'd like to see this year is we'd like to see the OTN platforms that were designed into start to ramp up in the metro. So as this carrier spend starts to roll out, clearly there's going to be spending in the LTE arena both in North America and China, that's been made very clear by the announcements. But we also think that will drag along some metro and aggregation type of boxes that will help move some of the OTN platforms along. So when we see those start to grow, I think that we'll see the overall optical part of our business flatten out and turn around and start to pick up instead of just burning off the legacy. That's been the real issue, as we've seen the legacy fall, [indiscernible] we missed the first big cycle of OTN. And we're looking to [indiscernible] maybe a long-winded way of not answering your question but [indiscernible] From a legacy perspective, that's a very related question obviously because that's -- many of the same pieces are in that legacy bucket. I mentioned it was 7% this quarter, that will probably get down in the 5% range over the next couple of quarters. So I think that that's kind of getting to a very manageable level for us and kind of burning through much of the end of that.

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Okay, great. And in storage, when do you expect the 12-gig products to ramp? Is it this year? Is it sometime next year? Just kind of wondering the time?

Gregory S. Lang

Yes. A lot of people are talking about the end of the summer, September-ish kind of thing. I wouldn't be surprised if that gets pushed out into the -- later in the year when all the pieces in the ecosystem get put together, especially when you talk about flash drives, et cetera, that support 12-gig. But we'll probably see it somewhere in that fourth quarter timeframe.

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Okay, great. And then, Steve, maybe one for you. I mean you still got a lot of cash, $270 million, and you're generating cash flow, I'm just wondering what the priorities are for that cash?

Steve Geiser

So -- well, as I mentioned, versus the $315 million of equity buyback that has been authorized by the board, we executed against $200 million of that, there's a remaining authorization of $115 million by the board. We continue to assess the best use for our cash. And as our plans become more firm, we'll keep you posted.

Operator

Next question comes from Brendan Furlong from Miller Tabak.

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

A question on the OpEx. Question, as we look forward to your -- you gave some nice color there for the full year. But on the assumption that, let's say, things continue to improve here, is there a level, be it a revenue run rate or some business function that you may release that OpEx to spend a little bit more, take the pedal off -- and can take the foot off the pedal a little bit or whatever way you want to put it?

Gregory S. Lang

I think that you wouldn't see us releasing or increasing that OpEx unless we get back to our model. I think that's the -- kind of our first agenda from a model standpoint is get back to that 25% operating model and then we'll feel a little more comfortable about -- as we continue to grow, to put some of that -- reinvest some of that back in future products. But at this point, until we get there, we're going to stay tight on the expenses and keep trying to push them down and even reduce that model -- the revenue that's required to hit the model.

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

The model, got you, understood. And the tax for the March quarter is guided to 0, I'm just -- what -- for the remainder of the year, what -- how should we think about the tax rate?

Steve Geiser

As you correctly state, guidance is -- on a non-GAAP basis is 0 for Q1. We would expect minimal non-GAAP tax expense for the balance of the year. If you modeled in approximately $0.5 million a quarter for the balance of the year, that's probably in the right neighborhood.

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Okay, great. And then last question's on the -- kind of back to the optical. It continues to be very weak. And I know you said you need to see the carrier spending in the back half of the year, but what gets the carriers to start using or getting -- switching to OTN? And you said that legacy goes 5% of revenues, does it flatline around that 5% when we get there in a couple of quarters' time?

Gregory S. Lang

Yes. That's probably a reasonable assumption to say that there's roughly 5% -- 4%, 5%, 6% probably in that range that's stays -- that kind of bumps along. I guess, sometimes legacy revenue lasts much longer than you expect, so that's probably a reasonable expectation. But to the first part of your question, the optics part of our revenue stream, I don't expect to grow until the OTN platforms kick in. Those platforms, I think, by the middle of the year, we'll start to see some of the new platforms that people are building around our HyPHY flex product start to roll out, so we should see some revenue out of that. And late in the year, we'll see a little bit of early builds around our 100-gig platforms, if that product is finished up on time. And then 2014, we'll see more 100-gig platforms roll out as well. So it's a little bit of -- over the course of the next year, there's a bit of carrier start to deploy more and we also get more platforms in our production with our second and third generation products getting out in the market.

Operator

[Operator Instructions] Our next question comes from Kevin Cassidy from Stifel, Nicolaus.

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division

This is Dean Grumlose calling in for Kevin. Moving back to the OTN area, are you getting any specific feedback from your customers on demand for OTN through 2013? Or do you get the impression that the customers are still waiting to get some signals from carriers and where the CapEx spending will be?

Gregory S. Lang

The signals, I would say, we're getting, the most interesting ones are just the energy being put into -- pushing very hard to release their products to production on these second, third generation platforms that I mentioned. Both in the 100-gig as well as the ODU 0 products are being -- there's a lot of pull on those. And one of the theories is that when carriers can actually deploy the ODU 0 or ODUflex type of platforms, and that -- those are just standard names but allows basically do mapping of 1-gig pipes to 1-gig pipes, wherein in the past it was somewhat inefficient because you had to map 1-gig ethernet pipes into 2.5-gig OTN pipes, so you'd lose some bandwidth. So there's -- I think part of the energy there is being driven not only by these guys wanting to get new platforms out but carriers also finding more interest in that more efficient mapping model that they get with the ODUflex and ODU0 standards.

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division

As you look across the different geographies, are there any geographies at which the take rate or pickup for OTN is any more clearer than any others or is this really a global wait-and-see?

Gregory S. Lang

Well in a -- actually the first geography that's already that pretty substantially on this is actually China, so China has already started deployments. I think North America will be behind China, AT&T and Verizon. But each of those geographies have actually started in their long-haul. And then China has already started to move into some of their Metro nodes as well. So I'd say China is in the lead and North America is behind, second behind them.

Operator

We have no further questions at this time. This concludes today's conference. Thank you for participating. You may now disconnect.

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