Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Raymond D. Zinn – Chairman, President and Chief Executive Officer

Ray Wallin – Vice President of Finance and Human Resources and Chief Financial Officer

Mansour Izadinia – Senior Vice President of Analog and High Bandwidth Divisions

Analysts

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Christopher Longiaru – Sidoti & Company, LLC

William J. Dezellem – Tieton Capital Management

Micrel, Incorporated (MCRL) Q4 2012 Earnings Call January 31, 2013 4:30 PM ET

Operator

Ladies and gentlemen, hello and welcome to the Micrel Semiconductor Earnings Call Q4 and Fiscal Year 2012. Please note that all lines are on listen-only-mode and there will be a question-and-answer session at the end of the presentation. (Operator Instructions)

And now to start off our conference, I would like to welcome and turn the call over to Mr. Ray Zinn, President and CEO. Please go ahead.

Raymond D. Zinn

Well, thank you and thank you all for joining us today. We’re appreciative of all those who are attending. With me today is Ray Wallin, who is our Vice President and Chief Financial Officer; and also Mansour Izadinia, who is our Vice President of Analog and our Timing and Communications Group. So with that, I'd like to turn the time over to Ray Wallin, to give us the prepared financials.

Okay, Ray, go ahead.

Ray Wallin

Well, thank you Ray. In conjunction with this conference call, a number of supplemental charts will be made available on Micrel's website during the following prepared remarks. To access these charts please go to Micrel's website and click on the link that will take you to the fourth quarter 2012 conference call slides. We will begin today's call with the legal disclaimers and Safe Harbor statement.

All material contained in the webcast is the sole property and copyright of Micrel Incorporated with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties. Forward-looking statements include statements regarding future business results, future levels of sales and profitability, future customer demand, inventory levels and economic and industry projections.

Various factors could cause actual results to differ materially from what is set forth in such forward-looking statements. Some of the factors could affect the Company's results have been set forth in our press release dated January 31, 2013 and are also described in detail in the Company's SEC filings, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2011 and quarterly reports on Form 10-Q that were issued after the 10-K. Listeners, who do not have a copy of our fourth quarter and full year 2012 earnings press release, may view the press release on the Company's website.

We will review the financial results for the fourth quarter and full year ended December 31, 2012 and then discuss our outlook for the first quarter of 2013. Our prepared remarks will be followed by a question-and-answer session with the financial community.

Let's begin with an overview of Micrel's 2012 fourth quarter and full year financial and operational highlights. Overall, we are pleased with our financial and operational results for the quarter, especially given the current economic environment faced by the industry.

Fourth quarter revenue of $62.3 million was slightly down from the third quarter and was driven by steady demand from customers in the communications end market. Operationally, gross margin for the quarter declined sequentially to 50.3% from 52.9% due to lower factory capacity utilization and true-up of reserves.

At the bottom line, excluding the impact of the non-cash write-off of our deferred tax asset and other non-recurring tax items, which I will discuss in more detail in a moment, non-GAAP earnings per diluted share was $0.06.

The fourth quarter results wrapped up a challenging, but solid year performance for Micrel. Despite the very tough global macroeconomic environment that persisted throughout 2012, bookings during 2012 yielded a book-to-bill ratio of approximately 1 for the full year. On an annual basis revenues of $250.1 million were down 3% compared to the prior year.

In addition, we are very happy with the record number of new products we introduced during the past year. Design wins in 2012 were up compared to the prior year and we are happy with the traction that our products are generating in the market place.

We continue to introduce new products which made our customers power conversion needs by offering more highly integrated products. Our recent new product introductions include high power density products, such as our family of SuperSwitcher’s for communication market and high efficiency LED drivers for smart-related/ LED drivers have been adopted in multiple platforms by a major cellphone manufacturer due to it’s excellent performance and efficiency.

In addition, within the Chinese markets, our power management products have gained traction in Smart Meters, networking and cellphone markets by increasing our focus in this growing region. Following through with our strategy for SAM expansion in the clock and timing market, Micrel’s Timing and Communications group recently launched two state of the art products that would address the increasing performance in integration requirements of networking, storage and cloud computing applications.

Our ClockWorks FLEX2 dual PLL synthesizer addresses the needs for generating numerous clock frequencies from a single device, while providing excellent performance. The ClockWorks Fusion module product integrates a quartz crystal with a precision PLL and a multi-output fanout buffer, operating a complete clock solution in a single package. Thus reducing design complexity and board space.

We are seeing a strong market demand for FLEX2 and Fusion products, and we already have design wins at major Tier 1 customers.

Finally, Micrel will also offer a fully functional narrow band ATA solution to its customers. Customers will be able to customize the software and offer it to end users.

Now Micrel continues to operate from a position of financial strength. I mean, looking at our liquidity position, cash flow from operating activities was $7.2 million in the fourth quarter and $33.3 million for the full year. And during 2012, cash flow from operations was approximately 13% of revenue. At year-end, our cash, cash equivalents and short-term investments balance was approximately $103.6 million or $1.72 per diluted share.

Our strong balance sheet continues to provide Micrel with significant financial flexibility to invest in our business. We continue to be very focused on enhancing shareholder value through our stock repurchase program and quarterly dividend payments.

During 2012, Micrel invested $34.6 million to repurchase 3.4 million shares of common stock, over 6% of our outstanding shares at the beginning of the year. And since 2001, the Company has spent $430 million repurchasing Micrel common stock. These repurchases helped to reduce the diluted shares outstanding in this period by approximately 40%.

As previously announced, during the year, Micrel’s Board of Directors authorized an increase in the Company’s quarterly common stock dividend. And for the final two dividend payments of 2012, the dividend rate was increased 6.25% to $0.0425 per share of common stock, reflecting a dividend yield of approximately 1.8%. Since the dividend program began in 2007, we have paid out approximately $55 million in dividends to shareholders of record. And for the full year 2012, the amount invested in share repurchases combined with dividend payments amounted to approximately 1.4 times cash flow from operations. Micrel continues to manage the company through its long-term financial model.

Now, let's take a closer look at Micrel 's fourth quarter financial details. As just noted, we recorded revenues in the fourth quarter of $62.3 million, slightly down from $62.9 million in the third quarter of 2012 and compared with the same period last year revenues were higher by $3.6 million or approximately 6%. Standard product sales accounted for 96% of total fourth-quarter revenues with custom and foundry sales comprising the remaining 4%.

Our fourth-quarter sales mix by product area was; linear and power, 59%; timing and communications, 21%; LAN, 19%; and other, 1%. OEM turns fill for the quarter was in line with the third quarter. And Micrel's sales remained widely diversified with our top 10 direct customers accounting for 17% and 18% of sales for the fourth quarter and full-year 2012.

Revenue by end market for the fourth quarter was as follows; communications, 19% compared to 17% in the previous quarter; wireless at 15% compared to 16% in the third quarter of 2012; shared computing 17% for both quarters; industrial 47% for both periods; and other 2% compared to 3% in the third quarter.

And fourth quarter sales by region where as follows; North America, 24% compared to 25% in the third quarter; Asia, 63% unchanged from last quarter; and Europe, 13% up from 12% in the third quarter of 2012.

Now continuing with our income statement to SG&A; SG&A spending for the fourth quarter was $12.8 million, a 20.6% of revenues up from $11.8 million in the third quarter of 2012, or 18.8% of revenues. The increase in SG&A is primarily due to higher selling expenses of $0.5 million, and $0.2 million for increased advertising and an effort to bolster future revenue. Research and development expenses were $14.6 million or 23.4% of revenue, down from $15.3 million or 24.4% of revenue in the prior quarters.

As you recall, in the third quarter of 2012, Micrel took a $1 million write-down relating to an investment in technology. Micrel has intentionally increased it R&D spending for the year 2012 in a effort to increase it’s revenue growth in the wireless and timing and communications market. And we expect this increased R&D spending to continue into 2013.

Operating income for the fourth quarter was $3.9 million or 6.3% of revenues compared to operating income of $6.1 million or 9.7% of revenues for the third quarter of 2012. The effective tax rate for the quarter was significantly higher than the statutory rate in the fourth quarter, primarily due to the write-off of differed tax assets totaling $7.6 million, with this all known operating and other non-recurring tax items that were approximately $0.03 per diluted share.

Now, late in 2012, Proposition 39 was passed in the State of California which revise certain provisions of the California State Tax Code. Now Proposition 39 requires mandatory single sales factor apportionment in California for most multi-state taxpayers were tax due is beginning on or after January 01, 2013.

We currently expect that in 2013 and beyond, our income subject to tax in California will be lower than under prior tax laws and that our California deferred tax assets are therefore less likely to be realized. As a result, during our fourth quarter of 2012, we recorded a charge of approximately $7.6 million to reduce our previously recognized California deferred tax asset. And additionally, given our reduced portion there, we have also reduced our California state tax rate for 2012 to 2% from 5.5%.

There is another housekeeping item of note related to taxes. During 2012, the Federal Research and Development tax credit provision was suspended, so that the Company was unable to record any tax benefit associated with it. While as recently retroactively reinstated, the new law was not enacted until the first of the current year. So on the U.S. GAAP, the benefit cannot be recorded until the first quarter of 2013. Thus, our tax rate in 2013 will reflect two years of Federal Research and Development tax credit benefit.

Including the $7.6 million write-off of deferred tax assets and other non-recurring tax items described above, the fourth quarter GAAP net loss of $5.7 million or $0.10 loss per basic and diluted share and this compares to third quarter GAAP net income of $4.7 million or $0.08 per basic and diluted share. The consolidation of PhaseLink acquisition is on track, and diluted EPS by less than $0.01 during the fourth quarter of 2012 on a GAAP basis.

Now, turning to the balance sheet; our liquidity position remains strong. Our cash and short-term investments were $103.6 million at the end of the fourth quarter compared to $108.7 million at the end of the third quarter, and $137.9 million at the end of the prior year period.

As we noted earlier, we invested $6.1 million to repurchase over 600,000 shares of common stock during the fourth quarter. Cash flow from operations for the quarter was $7.2 million compared to $5.9 million in the prior quarter and $3.4 million for the fourth quarter of 2011.

Capital expenditures totaled $3.9 million in the fourth quarter up from $2.1 million in the previous quarter and up from $1 million in the year ago period. This increase was for back-end test equipment primarily to meet the increasing demand for our land, and timing and communication products. We expect capital expenditures to be in the $1 million to $2 million per quarter range for the next several quarters.

Accounts receivable balances declined by $5.3 million in the fourth quarter to $27.7 million primarily due to timing and collection. As a result, days sales outstanding was 41 days at the end of the fourth quarter, compared to 48 days at the end of the prior quarter and the company does not have any significant collection issues.

Net inventory increased approximately $3.3 million during the fourth quarter to $42.3 million, due primarily to higher working process. Our fourth quarter days of inventory increased to 126 days compared to 121 days in the third quarter.

We are – primarily to respond to customer demand for shorter lead times. At the end of the fourth quarter total channel inventory weeks of supply were approximately the same as last quarter at about 15 weeks.

Fourth quarter depreciation and amortization was $3.7 million, up from $3.3 million recorded in the third quarter of 2012.

Now, let's turn to our outlook, where we helped the investment community understand the complex and changing dynamics of the semiconductor industry, Micrel frequently provides data relevant to industry economic condition and outlook. So we want to remind everyone that the following information is not specific to our company. It is this factor up that once again provider industry viewing outlook.

So next to 2009, 2012 was the most difficult time for the semiconductor industry we’ve seen in the past 12 years. The continued sluggish U.S. economy as well as the struggling European economy, continues to weigh heavily on the industry, especially in the computing and consumer markets. And as we have mentioned in the past, when the U.S. GDP is well below 4%, it seems to have a major drag on the semiconductor industry as a whole as the semiconductor industry seems to rely heavily on consumer disposable income spending to support its growth.

We believe that U.S. macroeconomic growth in excess of 4% allows the semiconductor industry to grow the multiple of the U.S. GDP growth rate. However when the growth rate of the U.S. economy drops below 4%, it seems that the industry there is no better than track the U.S. GDP with no multiplier effect.

It now appears that when all the numbers are in, the semiconductor industry may contract at a negative growth for 2012 in the range of down 79%. Now we believe this is primarily due to semiconductor customers significantly reducing their inventories. And this in tern seems to have caused the semiconductor industry to grow more slowly than actual demand.

Now we believe that relatively short lead times and continued pressure on semiconductor companies to hold the inventory for their customers has enabled the semiconductor customers to reduce their inventories, thus causing industry sales to drop below actual demand.

Now, with that backdrop, let’s turn to slide number one, which is a semiconductor industry cycle chart. As you can see from the cycle chart, the unit shipped by the semiconductor industry has remained below the trend line for about five quarters, and this seems to indicate that the unit shifts are below true demand. In a normal cycle, it averages about six quarters for the unit demand to revert back to the trend line and vice versa.

Typically the number of units reversed back to the trend line as customers respond to lower inventories and lower lead times by increasing their semiconductor orders.

Even with the U.S. and European economies remaining sluggish and the U.S. economy predicted to grow no better than 2% for 2013, we are still expecting to see semiconductor units shipped, getting back towards the trend line by the second half of 2013. And as a consequence of this, we believe that industry growth could reach double digits in 2013.

Now, let’s turn to slide number two, which is our semiconductor barometer chart. With all this in mind, we predict that lead times will begin to expand towards the latter part of Q1, going from roughly two to four to four to six weeks by the end of Q1. And Q2 tends to be a stronger quarter for the industry and as a consequence, we expect lead times to continue to remain in the four to six week range, at least through the middle of Q3.

So as a result, we expect pricing to remain steady and we expect capacity utilization to improve. Let’s now turn to the outlook for Micrel for the first quarter of 2013. Looking ahead, we continue to expect to see Micrel’s growth driven from the smartphone, Voice over IP, solid-state drives and automotive end-markets. All four of these markets are currently key areas of growth and technology focus for the company. We also expect to see the industrial market improving as the industry resumes its climb back towards the trend line. As we have done historically, we expect to continue to carefully manage operating expenses. And as a result, we expect operating margin to expand as revenue increases.

Based upon current inventory levels and demand estimates the company projects first-quarter 2013 revenue growth will be in a range of -6% to +3% on a sequential basis. The reason for this wide range is because we are in a short lead time environment, and what seems to be the early stages of recovery, visibility remains limited.

Gross profit margin is expected to be in the range of 51% to 52% and in addition the company estimates that first-quarter 2013 GAAP net income will be approximately $0.5 to $0.10 per diluted share.

So this concludes our prepared remarks and we'll now go to the question-and-answer session of our call.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) And our first question is from Tore Svanberg with Stifel Nicolaus.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Yes, thank you. First question, could you talk a little bit about linearity of bookings, I mean you talked about book-to-bill for 2012, but if we look at sort of the last couple of months here, how bookings done and perhaps especially a little bit of emphasis on the month of January, how bookings have been so far?

Raymond D. Zinn

Okay well, you can tell they’re backend loaded, I mean the front-end loaded quarter for Q4, bookings tailed off in the last December. So, the bookings where very weak through December resulting in a book to bill below one. But going into January, January started off a little quiet as regard to the new years and everybody coming back to work. So the bookings from their have improved quite nicely and that's why we think there is an upside to Q1.

But because again we've got Chinese new year coming off and other unknowns what's going to happen in the US economy etc., we have kind of a wide range because on a run rate basis it looks like we will be nowhere since last. But the backlog was down going into Q1 and so we are just hedging a little bit, wondering how things are going to strengthen through the latter part of the quarter, because Q1 typically is a backend loaded quarter as you would think it would be because Q2 is a strong quarter for the industry and for Micrel. And so in order to get a good start in Q2 you’re going to have pretty strong backend on June. But that hasn't happened yet, so they wide range. So bookings have improved dramatically, but two weeks doesn't make a quarter, so there you are.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

That's fair. And if you look at the December quarter, you were only down 1% sequentially which was quite a bit better than your peers and year-over-year the revenues were up 6%, I mean are we starting now to see several of the fruits of some of the new R&D spending and some of the new market you are penetrating. You mentioned communications doing really well you maybe can elaborate a little bit on some of the share gains you’re getting there?

Raymond D. Zinn

Sure. Okay. So, you told that quarter – year over quarter something like that, it was 6% up, because year-over-year was down 3%, which is still better than we think the industry is going to come in or at least our analog and mixed signal peer group. Yes, you are seeing the effect of that; that is what we believe is happening is Micrel is getting share gain and you were beginning to see the traction in our price. So with that Mansour, you want to talk anything about some of those products and what’s going to help us in 2013.

Mansour Izadinia

Surely. Probably as you know, we have been very focused on bringing out products that are high performance and therefore higher margin products for mostly industrial and communication kind of market segments and we continue to do that throughout 2012 and obviously 2013, you are going to continue to see really higher performance products coming out of Micrel’s R&D effort. So some of our SuperSwitcher products, we pushed on the performance, our flash LED driver, we have talked about and that product is one of the highest performance products on the market today.

So obviously those are the fruits of some of the activities that we’ve had throughout 2011 and 2012. I have talked about products coming out and throughout the latter half of 2012, as well as 2013, you will continue to see more and more products coming out of that kind of product that essentially pushed the envelope.

We think that, that is what really differentiates Micrel is the fact that we are really focused on the higher performance end of the market segments.

Raymond D. Zinn

Well….

Ray Wallin

Go ahead.

Raymond D. Zinn

You also told about some of the higher performance products from our timing products, and very recently creating this – lot of timing solutions into the module, end turn products that’s the fruits of some of our timing efforts as well as you saw some of that in the Q4 R&D operations?

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

That’s very helpful and maybe a question for Ray Wallin, well it looks like you're going to bring down utilization in the March quarter, what's your inventory plan for the quarter?

Ray Wallin

Well, it depends upon how it’s raised in, depends on whether revenue comes in of course but we have substantially brought down the bills for Q1, utilization will actually drop in Q1 to what you think right below 40?

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Below 40, yeah.

Ray Wallin

Yes. And so, we don't know where our days have ended up.

Raymond D. Zinn

I think they should come down because we are taking down the mass things substantially in Q1. So we can adjust our inventory. So our days should come down.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

And again, if its…

Ray Wallin

But revenue comes in too Tore.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Sure. Well, and what was the utilization in the December quarter?

Ray Wallin

It was about 42% on a net basis in a full work schedule. It will retire if you assume time off.

Tore E. Svanberg – Stifel, Nicolaus & Co., Inc.

Okay, very good. That's it for now. I'll go back in queue. Thank you.

Operator

Our next question is from Chris Longiaru with Sidoti & Company. And it looks like we actually just lost Chris's line. So our next question is from David Wong. Please go ahead.

Unidentified Analyst

Thanks very much, Ray, couple of housekeeping questions. You talked about the R&D tax credit. So will you spread back the catch-up period over the four quarters or will that be a fairly big tax credit in the March 2013 quarter included in your GAAP EPS guidance and what is the ongoing tax rate that we should be using through the various quarters?

Ray Wallin

So we will take the full benefit of the 2012 benefit in the Q1 timeframe, and so our tax rate for Q1 will be approximately 12%, because of the double benefit there, because you get the one quarter of 2013, you get the full year of 2012 and the one quarter. And so going forward for 2013, I think probably on average, we will be looking at a tax rate somewhere in the low 30s.

Unidentified Analyst

Low 30s for the second, third, and fourth quarter, each of those you say? Is that right?

Ray Wallin

Yeah.

Raymond D. Zinn

Yeah.

Unidentified Analyst

Okay.

Raymond D. Zinn

Remember in the first quarter – yeah, David remember in the first quarter you have increased FICA and some other expenses that tend to weigh on the earnings for Q1.

Unidentified Analyst

Right, okay. And then with the lower utilization in the first quarter, does that pressure your gross margin in the second quarter? Do you actually have higher cost inventory to get sold in the second quarter, so that holds gross margin down for the June quarter?

Raymond D. Zinn

Okay. So David, the answer to that question is, we are on a rolling nine months, standard cost system here at the company and in addition to that, we’ve set a floor on the minimum level of masking that we – inventories, so if we manufacture below that minimum level, we take the cost of that production straight to the P&L. And so our standard costs rolling nine months, but they are effectively kind of locked in here at the current levels for a couple of quarters, because we’ve had a charge for the last couple of quarters, so that – at the same standard. So the cost should be about the same in total or on average costing.

Unidentified Analyst

Just to clarify, but I understood that. So the March 2013 quarter does actually have some under utilization charges that are expensed in that particular quarter then, is that correct?

Ray Wallin

Yes.

Unidentified Analyst

Great, okay, thanks very much.

Operator

Our next question is from Chris Longiaru with Sidoti & Company.

Christopher Longiaru – Sidoti & Company, LLC

Hey guys, can you hear me?

Raymond D. Zinn

Yes, we can, Chris. Go ahead.

Christopher Longiaru – Sidoti & Company, LLC

Yeah, I am sorry. I have some technical difficulties over here. So I wanted to first ask just, can you give us an idea on the higher power products if there is any difference in terms of gross margin there?

Raymond D. Zinn

Go ahead, Mansour.

Mansour Izadinia

Yes, and some of the products that we are developing actually, most of the products that we are developing with high efficiency, higher product and SuperSwitchers, I talked about targeted specifically for the communication kind of – towards the communication end markets. And they pushed the performance end of the envelope. So we are not into the commodity space, so we are really into markets that they need the higher performance and ready to pay for that performance. So they are higher margin products and obviously we do expect that going over a longer period of time, our gross margins are going to expand.

Christopher Longiaru – Sidoti & Company, LLC

Thank you. Can you give us an idea what they are relative to their corporate average?

Raymond D. Zinn

Like, how much?

Christopher Longiaru – Sidoti & Company, LLC

Yeah.

Ray Wallin

Well, it really depends and it's really hard to talk about pricing because it’s completely customer specific, so I’d rather not do that. But now generally speaking, communication on the spectrum, if look at the communication kind of company’s, the gross margin is up, a few end up maybe 10 points higher than the commodity space.

Christopher Longiaru – Sidoti & Company, LLC

Got it, okay. And then just on the inventory side, it sounds like inventories in the channel came down again. Can you comment on where they are and where kind of a healthy level is and how long it takes to get products out from quarter through shipment?

Raymond D. Zinn

Let me take that, Ray. Okay so, the healthy level for our channel combined which includes sell in channel and the sale through channel; it represents about 70% of our revenue, that's about 15 to 17 weeks. And we're currently at the lower end of that right now, about 15 weeks.

Christopher Longiaru – Sidoti & Company, LLC

Okay.

Raymond D. Zinn

In the sale through channel, we’re about 13 weeks, so it's even below where it would normally be, so there has been a big drain in the sell through channel. The sell through channel is little bit higher, because we are strategically placing inventory in the channel to be available with short lead times and any upside that we'd have across another market. So we’ve got a good balance right now at 15 weeks, but you have to understand that the channel, if you look at the barometer, we show that the inventories are going to be down, I don't know if you saw that or not Chris, but we do show you the barometer and the end of it towards are going to be down even in Q1.

Christopher Longiaru – Sidoti & Company, LLC

Okay. At that point, you are kind of below what’s really a healthy range, so then just in terms of how – upon demand rebound, how quickly will they have to restock that to that? May be middle of that 15 to 17 week range?

Raymond D. Zinn

Well, what we’re seeing right now is more expedite than we are seeing push out, so that tell us, this is beginning to happen. I think Tore asked that question little earlier, what we were seeing and we have bookings and so we are seeing more expedites than push outs, so that tells us that its on its way, that’s why we feel comfortable giving a range of plus three on our guidance, because it looks like that could happen. And but we’re hedging because again we got off to kind of the slow start to first of the quarter and until we see that turn still and sell through happen, our range is pretty wide on the revenue picture or so. But we are confident by the fact that again these expedites are exceeding the push out, so that does indicate the improvement that we think is going to happen vis-à-vis this recovery back to the trend line.

Christopher Longiaru – Sidoti & Company, LLC

Okay, that’s helpful. Thank you. I will jump out. Good job on the expenses guys, thanks.

Raymond D. Zinn

You are welcome. Thanks, Chris.

Operator

Our next question is from Tore Svanberg with Stifel Nicolaus.

Tore Svanberg – Stifel Nicolaus & Company, Inc.

Yeah. I just had a follow-up on the operating expenses. So I think Ray you mentioned it would be up slightly in Q1, how should we think about OpEx for the remainder of the year?

Ray Wallin

Well, actually, I think we are thinking that operating expenses will go down in Q1 relative to Q4 slightly. And I would expect that you will see some very strong control of operating expenses as we go through 2013. Our objective is revenue growth to capture that operating margin expansion for the company. So we are going to be very controlling operating expenses extremely tightly as we go through 2013.

Raymond D. Zinn

And we try to revert back to our model. So we are going to be controlling operating expenses tremendously.

Tore Svanberg – Stifel Nicolaus & Company,Inc.

Very good. And can you just remind us where you expand on your buyback program at this point? I mean, how much you have left I guess?

Ray Wallin

Okay. So we talked about we did roughly 600,000 shares in the quarter, 6.1 million. So if you factor that in, we are at about 19 million left under the repurchase authorization.

Tore Svanberg – Stifel Nicolaus & Company,Inc.

Very good. Thank you very much.

Raymond D. Zinn

You are welcome, Tore.

Operator

(Operator Instructions) The next question is from Bill Dezellem with Tieton Capital Management.

William J. Dezellem – Tieton Capital Management

Thank you. I have a point of confusion relative to the fourth quarter inventories and the growth that you saw in – the business ended up with the high-end of your revenue guidance, and yet there was inventory growth, and so can you help us understand the dynamics that took place to create that and what maybe what it is that we weren’t seeing behind the scenes?

Raymond D. Zinn

I guess, maybe I will talk a little answer and maybe Ray can chip in as well in more detail, but there has been a little bit of shifting dynamics in the industry. As you know that lead times have gotten very, very short in the industry.

So there is a lot more of push for the supplier in order to hold the inventories and it's kind of what you saw here is that, we're holding more inventories on the micro book versus our distributors and physically this through sell through channel.

Ray Wallin

And I think partial of that Bill is that the fact that I don't want to just shut the factory down, I mean it takes a certain amount of just run rate just to keep the factor rolling, so when you get down to such a low level on utilization, there is a certain amount of inventory build that you will attenuate just by virtue of the factor, you have a certain level, you got to run at you can, you got to run water, you go to run power, so you might as well get something out of it. So, rather than just raise the cost up, we just decided to run a little more inventory, so a part of it’s that.

William J. Dezellem – Tieton Capital Management

Thanks, that does help and I'm going to apologize for being a bit of a slow pony here. In the first quarter, if we heard you correct, you anticipate bringing your utilization level down further though to now cut inventories and it seems like you might be on the verge of a revenue turnaround. So are you being ultraconservative with the factory or what are the dynamics there? I'm trying to fit these pieces of the puzzle together.

Ray Wallin

You're asking great questions Bill, so don't feel bad at all, you're not a slow pony at all. As Zinn said, with that much inventory, days of inventory, and does not knowing exactly where the revenue is going to come in; for example, what if it came in at the low end, you know of the minus 6, you can see the problem that is going to cause. So we're kind of hedging, that’s why the gross margins are being affected to some degree, so we are actually going to be, utilization will be down below 40% for Q1.

We don’t know what else to do, I mean, until as the recovery begins in earnest, we are just going to manage things as carefully and as cautiously as we can. But certainly I do have my hand on the throttle and I am manipulating the throttle as best I can to keep the factory running at a decent level, but at the same time, not run the inventory out of sight either.

So with a range of plus three to minus six, that’s a bring a pretty big revenue shift as you get, that could be doing great, I could have an issue, but right now, we are modulating the factory to the low end, so I am actually running the factory is at by it was going to be at the minus six, does it make sense?

William J. Dezellem – Tieton Capital Management

Yes, it does. And thank you for that detail. So what you are saying is, since you are running the factory with the assumption that you are at the low end is in fact the remainder of the quarter continues, as you have seen here in the last couple of weeks, although you are not ready to consider that a trend, but if it were to turn into one, you would be able to let the factory run just a little faster and at the same time, your inventories would come back to the level on turns basis, more in line with what you will be comfortable with and that things would turnout a little bit better than what you are guiding at this point?

Raymond D. Zinn

Exactly, and you are spot on. Bill, you understand it 100%. So the factory can turn on in two to three weeks, so if things keep perking along as they are, we might let the thing tweak up a little bit, I am going to go back to 16% utilization like we were a few quarters ago, but I might move it up to 50 or something like that.

William J. Dezellem – Tieton Capital Management

Great, thank you both.

Raymond D. Zinn

You're welcome.

Ray Wallin

You're welcome.

Operator

(Operator instructions) and we have no further questions in queue.

Raymond D. Zinn

Well, thank you for joining us today. We appreciate all the great questions that you guys have spot on and understanding the issue. So what we're looking at here really is, do we have a recovery or do we not, and so if there is a recovery then I think things are going to improve for micro and for that matter the rest of industry. Albeit you know the U.S. economy is still struggling, the industry is as you say under shipping to demand and I think that will be for the balance of 2013, I think it's going to play to our benefit.

I appreciate everybody standing by and sticking with us, we certainly are managing I think very well our expenses and controlling that in these very difficult times are breakeven, we drafted by $3 million a quarter and I much appreciate the effort my guys have done on that and so we're feeling good about where we are headed and what we can do. So thanks again and look forward to talking to you in April. All right.

Operator

Thank you, ladies and gentlemen. That concludes today’s conference.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Micrel's CEO Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts