Inphi's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Inphi Corporation (IPHI)

Inphi Corporation (NYSE:IPHI)

Q4 2012 Earnings Call

February 04, 2012 05:00 pm ET

Executives

John S. Edmunds – Vice President and Chief Financial Officer

Ford G. Tamer – President and Chief Executive Officer

Analysts

Quinn Bolton – Needham & Company

Bob Gujavarty – Deutsche Bank Securities

Doug Freedman – RBC Capital Markets

Sundeep Bajikar – Jefferies & Co., Inc.

Operator

Good day, ladies and gentlemen, and welcome to the Inphi Corporation Fourth Quarter 2012 Earnings Call. My name is Shanel, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there’ll be a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

And I would now like to turn the presentation over to Mr. John Edmunds, Chief Financial Officer. Please proceed, Sir.

John S. Edmunds

Thank you Shanel, good afternoon everyone. After the close of the market today, we announced Inphi’s results for the fourth quarter and year-ended this past December 31, 2012. If you’ve not received a copy of the press release, you can find it on our website at www.inphi.com. We would like to thank you for joining us today for our quarterly earnings call to discuss our Q4 financial results and business outlook. I’m John Edmunds, CFO for Inphi Corporation. And with me today is Ford Tamer, our Chief Executive Officer.

First, I’ll read the Safe Harbor; then Ford will give you an overview of our business; after that, I’ll give you a financial summary and an outlook for the first quarter of 2013; and then we’ll be happy to take your questions.

Before we begin today, please note that during the course of this conference call, we may make projections or other forward-looking statements. These forward-looking statements and all other statements made on this call, which are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially.

These forward-looking statements speak only as of today's call. We do not undertake any obligation to provide updates after this conference call. For further information regarding risk factors for our business please refer to our registration statements on Form S-1, as well as our most recent annual and quarterly reports on Forms 10-K and 10-Q all filed with the Securities and Exchange Commission, accessible at www.sec.gov. Please refer in particular to the section entitled risk factors. We encourage you to read these documents.

Also during the course of the conference call today, we may make reference to non-GAAP financial information. A reconciliation of this information is included in the press release and our website which is available at www.inphi.com. This information is not a substitute for GAAP and should only be used to evaluate the Company's results in conjunction with corresponding GAAP measures.

Now to begin our review of the quarter, I will hand you over to our Chief Executive Officer, Ford Tamer. Ford?

Ford G. Tamer

Good afternoon. Thank you John and thank you everyone for joining us. This quarter I'm pleased to tell you that we delivered on the midpoint of our guidance closing on the year with 16% revenue gross year-over-year. We contributed an average gross margin of 65.3% for the year, all this despite industry headwinds.

For the fourth quarter, Inphi reported revenue of $22.9 million in line with expectations up 32% on a year-over-year basis and down 7% sequentially from the third quarter. Our gross margins at 65.4% held steady when compared to the third quarter. Importantly, we continued to strategically invest for our strong future during this period of industry turbulence. As a result of this combination of factors, earnings fell from $1.5 million in Q3 to $0.9 million in Q4, still above the consensus estimate of $0.6 million.

Let me tell you about some of the highlights for the quarter. We shipped a new set of CFP customers slightly more than 1 million in 100 gigabyte SerDes and CDR products in Q4. The CFP Modules are currently being qualified at Tier 1 communication OEMs and should drive into volume production in the second half of this year. We expect to achieve more than 50% market share based on our current CFP design wins. And this product front is only the first leg of a multi-brand strategy in a 100 gigabyte communications business. We expect this strategy could result in over 100 million in communication revenue by 2015.

In our October earnings call, we announced several important takeoffs. We will continue to see good progress with those products. We have been fast at work on delegating and sampling with our customers. One of these products are next generation SerDes will be the foundation for our line card solution and next generation switches and routers for the datacenter market with a forecasted 1 million 100 gigabyte ports shipping in 2015.

Another product is our next generation 100 gigabyte linear driver, which together is our TIA and SerDes will be the core of our strategy to support what according to all of them would be total addressable market of $1.6 billion in 2015.

Finally, our server and memory module partners are giving us favorable feedback on sampling of our DDR4 technology to all the major DRAM manufacturers. The feedback from the follow-up of DDR4 platform has been favorable and we expect products based on this technology to be released with the Intel Haswell server in 2014.

Based on our investment strategy, I am very proud to report that all these multiple, concurrent, large clock initiatives are moving well in qualification. Our mighty engineering team has been working closely with our key customers and receiving strong and positive feedback. We currently are the only company with such a comprehensive layer one offering from fiber to memory, designed into Tier I customers worldwide.

Before discussing Q1 let me take a moment to reflect on my first full year at Inphi. It has been a year of great process and of significant challenge, let me start with our achievements. Growing our top line revenues by 16% year-on-year in the communication and server markets; maintaining our 65% gross margin in the face of a turbulent industry environment. Developing the plan to cross the $200 million revenue mark by 2015; focusing on our core competency of layer one, high speed data transport and signal integrity from fiber to memory, aligning closely with our top customers and partners in memory margin, optical margin, communication system, and server markets.

Winning significant designs that position us for leading market share in communication and server market, reducing production or sampling 14 new products during the year. Scaling the organization by hiring key technical component in CTO and engineering organizations, along our direct sales force and marketing worldwide and lining up our executive team with a new VP sales, General Counsel VP HR. And finally we are finding our brochure process fees in operational efficiency to enable future growth and scale.

However as you and loyal shareholders know, the year has also included some key challenges. First on that list is the less than expected ramp of the LRDIMM product line released in March of 2012. We remain confident that a question is when not if we would see significant return on our investment in this technology. We believe adoption rates will increase as Ivy Bridge and again with Haswell and we are decreasing LRDIMM module prices.

Secondly, while we have not met expectations on EPS due to a combination of revenue short fall and increased operating expenses, we do believe that our investments in new product will payoff in the second half of 2013 and beyond.

From now, I will make sure my goals are aligned with those of our shareholders. Therefore, given our financial performance in 2012, I recommend to the Inphi Compensation Committee, that I personally refuse, zero bonus and non-year equity.

After discussing with the committee I accepted my recommendation. In addition, my non-stage executive team did not receive any cash bonuses for 2012 for the same reason.

Finally, some members of my staff, directors, and I have been purchasing Inphi stock in the open market during the open period. Clearly, we are all aligned with shareholders and highly motivated to deliver stronger financial performance in the current year. Before I turn the call over to John, let me make a few comments about the near-term outlook.

The industry environment for Q1 continues to be sluggish, therefore like our peers, we’re guiding revenue down sequentially by 4% to 9% for the March quarter. While no company ever likes to revise guidance downward, we are proud of the fact that we’re guiding upward down for each of the past four quarters when I have been here, we have performed in-line with guidance we offered at the beginning of the quarter.

If our customers and industry analysts are correct, the end demand should bottom out in Q1 and gross at the end infrastructure based markets should resume in Q2. On top of that industry momentum, our new product introductions should also ensure that growth is sustained in the second half of 2013. We are confident that our continued investments are clearly leaving us, better positioned than our competitors to seize the first mover advantage and deliver value to our large OEM customers, when the market turns and in the years ahead.

With that I’d like to turn the call over to John for the financial details of Inphi's fourth quarter 2012 and to speak in greater detail about our expectations for our first quarter 2013. John, please.

John S. Edmunds

Thanks Ford. Now I will briefly recap the financial results for Q4.

As Ford stated, for the fourth quarter of 2012, the reported revenue of $22.9 million, which represented a 32% increase over the $17.3 million reported in the fourth quarter one year ago; it was also in line with our guidance, a 7% sequential decline from the $24.8 million in revenues reported in the third quarter of 2012. Our mix of business in Q4 continued as it was in Q3 to be approximately a 60-40 server communication type of mix.

As you may recall, our communications business grew more strongly during the course of the past year. On a Q4 year-over-year comparison, communications nearly doubled as compared to server growing at about 7%. The communication annual growth rate at approximately 30% was not quite as pronounced, but still well over the server annual growth rate of roughly 9% to 10%.

Again the annual growth rate for the company on a non-GAAP business was 16%, which excluded $750,000 warranty reserve booked in Q1. Externally, with our customers’ infrastructure based markets soft and uncertain, we are very focused internally on the process of validation and qualification of several of our new products, which we hope will go into production and drive revenue growth, both in the second half of 2013, as well as later in 2014.

Our resources have recently being stretched to a maximum level of productivity to keep pace with our development schedules. Net income in the fourth quarter on a GAAP basis was a loss of $16.6 million, or a loss of $0.58 per diluted share. This includes a one-time non-cash charge of $14.6 million for evaluation allowance that was established against our deferred tax assets. Essentially, the deferred tax asset are the benefits of NOLs and tax credits that have been recognized for book purposes, but have not has yet been realized in our tax returns. Evaluation allowance was established based on a change in California State Tax Law this past November, that will reduce our taxable income and thereby reduce our chances of realizing the value of the California deferred tax assets.

In addition, based on typical rolling three year cumulative analysis, the realization of our U.S. Federal deferred tax assets gets drawn into question as well. Although based on longer term forecasts we feel these assets will eventually be realized in our tax returns. At this stage, GAAP accounting rules dictate that we establish evaluation allowance. Eventually while rolling three year cumulative taxable income turns positive again, we will most likely reverse the valuation allowance again all in one shot in one quarter in the quarter in which we make that determination.

Absence of deferred tax asset valuation reserve, our net income on a GAAP basis would have been a loss of $2 million or $0.07 per diluted share. This compares to a net loss of $1.1 million or $0.04 per diluted share from the preceding quarter and to a net loss of $300,000 or $0.01 per diluted share in the same quarter, one year ago.

To give you more details comparing these numbers, I will provide some non-GAAP measures in a minute. Within the press release you will find a specific written reconciliation as provided, but in general the differences between GAAP and non-GAAP are due mainly to excluding stock compensation expense which in Q4 was $3.1 million, as well as the associated tax benefit of approximately $300,000, and then the deferred tax asset valuation, which we just discussed as well as some other smaller differences.

On a non-GAAP basis then, net income for the fourth quarter is approximately $1 million or $0.03 per diluted share, which was better than the midpoint of $0.02 and also compares to the $1.5 million of net income or $0.05 per diluted share reported in the third quarter. This also compares with non-GAAP net income of $300,000 or $0.01 per diluted share for the same quarter one year ago.

Non-GAAP gross margins for the fourth quarter of 2012 were 65.4%, which was down 20 basis points from 65.6% in the third quarter, but also up 110 basis points from the 64.3% we experienced in the fourth quarter of 2011. Our gross margins continue to be the backbone of our financial performance as we have continued to maintain them at levels of above 65% in 10 of the last 11 quarters.

Non-GAAP operating expenses for the quarter totaled $14.2 million, which was up approximately $800,000 in line with guidance and up from the $13.4 million for the September quarter, primarily due to higher R&D costs and higher sales expense associated with higher new sales resources including a new Vice President of Sales as well as a General Counsel.

We also added additional heads in Q4 and this along with the payroll tax reset in January will lead to a higher OpEx spending in Q1 in the range of $100,000 to $400,000 as we continue to make measured investments in both additional headcount and other resources to develop new products for the focused portfolio of data transport and signal integrity of solutions as specified in close collaboration with our customers.

With regard to the non-GAAP pro forma tax provision in the fourth quarter, our effective tax rate came in at a low 8% to provide for a 33.8% effective rate for all of 2012, down somewhat from the Q3 estimate of 38%. These rates all exclude any benefit from the U.S. federal R&D credit, which was not renewed by Congress for 2012 until early January 2013. The non-GAAP effective tax rate for 2013 is currently estimated at 24%. Other income in Q4 was approximately $230,000 coming mainly from interest income consistent with Q3.

Now turning to the balance sheet, non-GAAP cash flow from operations was a positive $500,000. However due primarily to CapEx of $1.7 million, the overall cash and short-term investments used was approximately $1.4 million, driving the cash and short-term investment balances down from $122.7 million to $121.3 million or from $4.31 per diluted share at the end of September to $4.23 per diluted share at the end of December 2012.

Our cash was still up year-on-year as compared to the $119 million at the end of December 2011or $4.05 per diluted share. Our working capital in general has stayed very efficient in Q4. With regard to inventory in particular we were down to 55 days on hand, which implies returns number of approximately 6.5. Total inventory increased by $0.3 million from $4.6 million to a very lean $4.9 million at the end of December and days of inventory on-hand increased from 49 days to 55 days.

Accounts Receivable did increase $900,000 due to timing of shipments in the quarter from $12.8 million to $13.7 million, which represented 54 days sales outstanding up from the 48 days reported at the end of September. Payables also increased $1.6 million and days payable outstanding moved out from 56 days at the end of September to 76 days at the end of December.

In summary, I hope it's clear to everyone that Inphi is a growing business with strong cash flows and a strong balance sheet, as well as strong operational metrics to support the continued building of strength and capacity to develop products that will further enable expansion of the company.

Now for the business outlook for the March quarter. Again, I would like to remind everyone that the following statements are based on current expectations as of today and include forward-looking statements. Actual results may differ materially. We do not plan to update, nor do we take any obligation to update this outlook in the future. In light of the recent announcements regarding near-term economic challenges and in spite of our book-to-bill ratio in January being more than one with limited visibility, we plan to be cautious with our guidance and therefore expect our Q1 revenues to be down sequentially 4% to 9% or $21.5 million at the midpoint plus or minus $600,000.

Non-GAAP gross margins are expected to remain in the 64% to 66% range. While an increase in operating expense will be offset by cost saving activities, few ongoing hiring needs and payroll tax expenses. We do expect an increase in non-GAAP operating expense in the range of $100,000 to $400,000 in the quarter. The U.S. Federal R&D tax credit for 2012 was reinstated in early January and considering the fact that it happened in January and due to the valuation allowances, we currently estimate to be able to recognize some of these benefits in 2013. We are currently estimating the non-GAAP effective tax rate to be 24% for 2013.

We are confident these components should be in line resulting in non-GAAP net income of between $300,000 of income to a loss of $300,000, which on approximately 30 million shares will result in non-GAAP earnings per diluted share of a positive $0.01 or a loss of $0.01.

We also estimate non-cash stock compensation expense to be $4.2 million. This would imply a GAAP net loss in the range of $3.6 million to $4.5 million for the quarter, or a loss of $0.12 to $0.15 per diluted common share. This outlook will not be updated during the quarter and up until the time of the next quarterly earnings release, unless Inphi publishes a notice stating otherwise. So please ask your questions today during the general Q&A period. And now we'll be happy to answer any questions you might have. Shanel?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of (inaudible).

Unidentified Analyst

Hi guys, thank you for taking the questions. Maybe just start off with you to talk about your outlook and you start to see a possible book-to-bill in January. But you know a lot of companies have started to see booking improvements in the month of December and continued in January so far. Can you just kind of give us more comment about the current environment?

Ford G. Tamer

Fedrick, hi, it’s Ford Tamer. I've been going through customers over the past two weeks and still it's very positive on the deployment of 100 gig and accelerating in the second half of 2013, driven by number one is the wireless backhaul, number two is declined infrastructure. So we're still very positive on 100 gig communication business segment going nicely in the second half of this year. Also with Ivy Bridge being released around mid-year, we are also positive on our LRDIMM getting a second kick and doing better in the second half of 2013. So overall my feedback from customer meetings has been very positive.

Unidentified Analyst

Thanks for that. On the R&D side, that’s up by $800,000 sequentially and I think now just because of the present levels of revenue over 41%. Do you see additional increases in R&D or how should we think about the level of investments needed to support your growth initiatives?

John S. Edmunds

Yeah Eric, it’s John. What I would tell you there is to think about the aggregate spend and not necessarily the percentage of revenue. It is up to $800,000, we have added R&D headcount in the quarter. In addition, we are continuing to invest in I think bringing four new major products that were taped out late last summer through in qualification validation processes, our expenses to undertake, so that’s really what’s driving R&D expense to be up and we hope that’s viewed as an investment that will lead to higher revenues once this product actually begin shipping late in the 2013 and on into 2014.

Unidentified Analyst

Great, thanks. Just one more, if I can. On the memory interface, it seems to be pretty lumpy, what do you seen an adjustment to get this business to grow again, what change drives this business throughout 2013? Thanks.

Ford G. Tamer

So 2013 would be Ivy Bridge and 2014 would be Haswell. So we are currently looking at this story as almost a mirror image of IPO story with communication being very strong in the second half of this year and with the server business kicking in and being strong was DDR4.

So there’s probably three major factors we are looking at for the server business; one would be, Ivy Bridge, which really helps our LRDIMM business, two is DDR4 and Haswell then have supposed to register and buffer business and three would be continuing decrease in module prices, so we are down now $13.99 on a module and that trend would help adoption of LRDIMM. So those are the three factors that we are keeping a watch on to look at the increase and growth for the server business.

Unidentified Analyst

Thank you for that.

Operator

Our next question comes from the line of Quinn Bolton – Needham & Company.

Quinn Bolton – Needham & Company

Hi guys. I apologize I had to jump off the call for a minute, but just wanted to come back and talk about the growth drivers for 2013, it certainly sounds like the communications business, both the TIAs and the modulator driver as well as sort of the initial SerDes and CRs, set to ramp it. If you were to rank order kind of the growth drivers in 2013 over 2012, did you do that for us and help us just kind of frame the expectations?

Ford G. Tamer

Yeah, the number one would be the SerDes and CDR business, so that’s a new business that grew from a base of almost zero in 2012 to – we are currently seeing will go through double digit millions in 2013, so that’s probably the biggest growth sector we have got in 2013 in percentage.

The second one would be our TIA going into datacenter type of applications as well as the introduction of our linear driver, so we have got two new kickers in 100 gig TIA business that is now going from long haul and metro to datacenter and number two a linear driver that is enabling the 100 gig coherent deployment which is critical for long haul in metro and then the number three we're saying would be the Ivy bridge launch which should enable renewed interest and gross of LRDIMM in the second half of 2013, so that's hard Quinn.

Quinn Bolton – Needham & Company

Okay great, thanks folks. And then just if I heard you right in your prepared comments you mentioned that you had shift to new CFT customers, the SerDes and CDR solutions in excess of $1 million. I just wanted to come back I think in the past you've talked about silicon photonics to customers. Are you comment saying that you don't have addition customers beyond those two or is your comment just that you shift in aggregate more than $1 million of total CDR in the fourth quarter?

John S. Edmunds

So I think it's close, I think we do have new customers beyond those two, that we haven't announced, and we have shipped over $1million this quarter and Q4 in revenue. So I think its combination of both.

Quinn Bolton – Needham & Company

Great, and then just question on – sort of on a technology front. Intel made some noise week or two ago about silicon Photonics and trying to reduce the cost of 100 gig modules for data sender applications. I mean do you sense that there is successful aid, I imagine that that's positive for your SerDes and CDR business that there wouldn’t be any potential threat of integrating your functionality into that silicon photonics module?

John S. Edmunds

It's definitely today very complimentary to our business. We have strong partners in the cycle system and we are under NDA, so we can't announce it, but as these boxes shit, you'll be able to open them and see who's gear boxes is in there. So we feel that Intel announcement is going to be positive for us and stay tune for more detail in the future.

Quinn Bolton – Needham & Company

I get that, without violating any NDA it sounds like those modules that would not include a Gearbox solution or functionality that the Gearbox would still be a required solution in addition to the module?

Ford G. Tamer

That’s correct.

Quinn Bolton – Needham & Company

Okay.

Ford G. Tamer

You will have a Gearbox that fits next to that module supplied by us or another machine vendor.

Quinn Bolton – Needham & Company

Great, okay, thank you.

Operator

Our next question comes from Seymore of Deutsche Bank.

Bob Gujavarty – Deutsche Bank Securities

Hi, this is Bob Gujavarty for Ross. Just a couple of comments, I mean just triangulating some of that stuff in the prepared remarks. It sounds like there is a significant diversions with networking being pretty strong and the computing side being a little weak in Q4, just curious how does that play out, those types play out as we go through the year. Is it both stay kind of soft in first half and both recover in the second half or how should we think about the relative fortunes of both of those segments?

Ford G. Tamer

Yeah, at this point we are seeing both our – on the pressure going into the first half, so we do see sluggishness on both the communication and server side of the business and to the first half. We do see the communication business going faster in the second half, although we do believe that there will be some growth in the server business as well.

Bob Gujavarty – Deutsche Bank Securities

Okay, so just using that simple math, comp should kind of – you think it will continue to grow in percentage of your math in 2013, is that a fair way to think about?

Ford G. Tamer

Yes, that’s definitely a good way to think about it.

Bob Gujavarty – Deutsche Bank Securities

Okay, thank you.

Operator

Our next question comes from the line of Doug Freedman, RBC Capital Markets.

Doug Freedman – RBC Capital Markets

Great, thanks for taking my question guys. Can you give us a little bit of color about the first half and second half commentary that you keep referring to, should we expect that the whole first half is going to continue to be under pressure? You made a comment that you feel like the market forecasters are calling for a bottom in Q1, are you not seeing Q1 be the bottom?

John S. Edmunds

No, we are lining to these forecast. So we are calling Q1 the bottom.

Doug Freedman – RBC Capital Markets

Okay. And how long do you think it will take to get back into your target operating income model? The company use to run between 15% and 20% operating income, how long do you think it will take for you to return to that range?

John S. Edmunds

I think you will see the operating income improve on a steady basis moving forward from the second quarter of 2013. It will take time to get up into the 15% to 20% sort of range. We would anticipate that would still be a year or two away but look sometimes in those quarters depending on the growth rates, we should move right back into that range.

Doug Freedman – RBC Capital Markets

And do you kind of offer some idea of what you think your – you offered some long-term revenue targets, one being $200 million in 2015, do you have any other intermediate targets that we should be aware of?

John S. Edmunds

I think other than giving a sense in 2013 that Q1 would be the bottom and then we would have – where we think it’s sustainable growth from the second quarter going forward, would – we will leave it at that in terms of exactly the shape of the curve moving up to those mark longer term targets that we’ve talked about.

Doug Freedman – RBC Capital Markets

Okay. And my last one; can you give us a sense of – you talked a little bit in detail about the SerDes and TIA business. Can you talk in some detail regarding your RDIMM business and what you are presently seeing in the registered side of the market? I know the LRDIMM is not ramping to plan but can you talk about, what you're seeing as far as demand in the RDIMM?

John S. Edmunds

We're calling it flat for 2013, Bob. We're seeing a nice volume increase but we're seeing a – we're under pressure from a price negotiation with the different module suppliers so we would see an ASP decline, that works against the volume increase.

Doug Freedman – RBC Capital Markets

Great, I will leave it there. Thanks so much for taking my questions.

John S. Edmunds

Thanks Doug.

Operator

(Operator Instructions) Our next question comes from the line of Sundeep Bajikar, Jefferies.

Sundeep Bajikar – Jefferies & Co., Inc.

Hi guys wanted to follow up on 40 gig and 100 gig, so clearly you had some growth in 100 gig in Q4, how should we think of that business in the near-term, I heard you say it would be down, if you could help qualify that a little bit that would be helpful and then likewise if you could talk a little bit about 40 gig as well given that is I believe the higher portion of your communication business today?

Ford G. Tamer

So, Sundeep if you look at the 100 gig business from Q4 to Q1, it's growing. So if you just look at a 100 gig product from Q4 to Q1, we still have some growth. The overall communication business is decreasing slightly and then the overall server businesses is decreasing. So we still have an increase in business in 100gig products from Q4 to Q1. So we still see that trend continuing and it will keep growing in Q2 and accelerate in Q3, Q4 but the rest of the communication portfolio 10 gig, 100 gig is under pressure.

Sundeep Bajikar – Jefferies & Co., Inc.

Okay, so I guess if I could just follow up on 40 gig and what that did in Q4 if you would please.

Ford G. Tamer

Okay, 40 in Q4 is kind of flat, Sundeep.

Sundeep Bajikar – Jefferies & Co., Inc.

Okay, thanks so much, and then a question on just on the server-side. It's clear that you said that you're under pressure. How much visibility do you have in the server shipments here in the near-term and what do you think is driving sort of the large sequential decline that's implied here by your guidance.

Ford G. Tamer

If you look at the sequential decline in the guidance Sundeep, I think we are probably in line with our peers that are serving some of your markets. So I looked at some of the peers that did report and you know who they are. I think they are pretty much in line with their kind of declines from to Q4 to Q1. So I mean if we can on to the specifics offline, but I think if you look at the folks that we're following, we're either in line or in some cases less declined than they are offering for that similar period of time.

Sundeep Bajikar – Jefferies & Co., Inc.

Great, thank you so much.

Operator

Our next question comes from the line of Quinn Bolton, Needham & Company.

Quinn Bolton – Needham & Co.

Hey Ford, just wanted to ask you a follow-up question. One of the drivers you have mentioned for the server business would be lower memory module prices and I guess the way the LRDIMMs work now at the memory modules sell them into the OEMs, the OEMs use it as profit center and charge much higher prices and that sort of kept the volumes really low. Do you envision the direct sale to end customers from the memory module vendors from sales is a way to get pricing to levels that can allow for much higher volumes?

Ford G. Tamer

There are some direct sales into the web datacenter if you wish and that’s happening directly from some of the module vendors. But for the LRDIMM, which is what we’re referring to, there hasn’t been yet any direct sale in LRDIMM. So RDIMM you see some of the memory module vendors sell directly to some of these large mass of these capable datacenter, but our LRDIMM has not been the case yet, they still go through the major server OEMs.

Quinn Bolton – Needham & Co.

And do you anticipate that continuing to be the case as we look forward to the Ivy Bridge and Haswell generations?

Ford G. Tamer

Yes, again I need the volumes to pickup in order for having direct sales. I mean the volumes right now are too low I think to want a direct sales, so it could change in the future if – it could change in the future with Ivy Bridge.

Quinn Bolton – Needham & Co.

Okay, thank you.

Operator

And there are no further questions. I would now like to turn the call back over to Mr. John Edmunds for closing remarks.

John S. Edmunds

Thank you, Shanel. Ford and I would like to thank you for joining us today. Inphi plans on attending the Stifel Nicolaus Conference tomorrow on February 05 in San Francisco, the Morgan Stanley Conference in San Francisco on February 27, the Piper Jaffray Conference in New York on March 12 and 13 and the ROTH conference in Los Angeles on March 17 and 18. I would now again like to thank you for joining us, we look forward to seeing you again in the future.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.

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