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Silicon Image, Inc. (NASDAQ:SIMG)

Q4 2012 Earnings Call

February 05, 2013, 05:00 pm ET

Executives

Mike Bishop - IR, The Blueshirt Group

Camillo Martino - CEO

Noland Granberry - CFO

Analysts

John Tanwanteng - CJS Securities

Charlie Anderson - Dougherty & Company

Raj Gill - Needham & Company

Christopher Longiaru - Sidoti & Company

Richard Shannon - Craig Hallum

Tom Sepenzis - Northland Capital Markets

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Silicon Image’s Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode and following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today February 5, 2013.

I would now like to turn the conference over to Mike Bishop of Silicon Image’s Investor Relations. Please go ahead sir.

Mike Bishop

Thank you. Good afternoon, everyone, and welcome to Silicon Image’s fourth quarter and full-year 2012 financial results conference call. I am Mike Bishop from Silicon Image’s Investor Relations. Joining me today is Camillo Martino, the company's Chief Executive Officer and Noland Granberry, the company’s Chief Financial Officer.

The agenda for today's call includes a discussion of the financial results and product and market update from Camillo. Noland will then provide a more in-depth discussion of the financial results and provide a financial performance estimate for the first quarter of 2013. We will then open the call for Q&A.

Silicon Image continues to report its product revenue in three categories: Consumer electronics or CE, Mobile and PC. CE consists of DTV and home theater products. The Mobile category includes both mobile HDMI and MHL-enabled products. The PC category includes PC, storage products and IP revenue continues to be reported separately.

Before I turn the call over to Camillo, let me remind listeners that during the call, we will be making forward-looking statements based on our current expectations regarding many aspects of our business and the markets in which we operate, including, but not limited to forward-looking statements about financial results and performance, our current and future products and technologies, the timing of new product introduction, average selling prices, design wins, market demand for our products, operating expenses and standards activities.

Our actual results may differ materially from our forward-looking statements and we disclaim any obligation to update any of our forward-looking statements. In addition, our forward-looking statements and the company’s future results are subject to risks and uncertainties which we described in the today’s press release as well as in the most periodic reports on Form 10-K, and 10-Q filed with the SEC. These documents contain relevant risk factors that could affect future results.

We have also provided a financial metrics table and reconciliation of non-GAAP financial information to GAAP information in our fourth quarter 2012 press release, which is available on the Investor Relations section of our website at www.siliconimage.com.

And with that, I would like to turn the call over to Camillo.

Camillo Martino

Thank you, Mike. Good afternoon everyone and thank you for joining our fourth quarter 2012 earnings call. On today’s call, I will give you a brief overview of the company’s performance in the fourth quarter and full-year and a business update. And then Noland will go through the numbers in more detail and provide our financial outlook for Q1.

We are pleased we achieved net income ahead of our expectations this quarter despite the fact that revenue was lower than our guidance provided on last quarter’s earnings call. Revenue for the fourth quarter was $59.6 million and revenue for the full-year was $252.4 million, an increase of 14% compared with the prior year. The lower revenue, relative to original guidance for the fourth quarter, was a result of changes in the timing of production schedules and a greater than anticipated reduction in the level of inventory held by one of our large customers.

Q4 non-GAAP EPS was $0.08 compared with $0.06 from the same period in 2011. For the full-year, non-GAAP EPS was $0.22 compared with $0.20 last year, a 10% increase. Our operating expenses this quarter were lower than projections due to continued cost control and a reduction in compensation resulting from a partial achievement of our financial objectives during the fiscal year. While we missed some of that financial objectives, Silicon Image accomplished a significant number of strategic and operational milestones and achievements in 2012 and in the process we drove the company to become even better positioned to deliver value-added services to our customer base.

First, we drove MHL to new successes and higher levels of market penetration. In 2012, we shipped more than 140 million units to the mobile phone market segment. Secondly, and importantly for our strategy, we achieved our challenging wireless 60 gigahertz goals we set for ourselves at the beginning of 2012 which resulted in the launch of the Mobile UltraGig product line in December. Also during the year, we achieved a Silicon Image record level of shipments of approximately 200 million units. This metric further demonstrates that we are at scale and solidifies our status as a world-class semiconductor company.

By the end of 2012, HDMI surpassed the 3 billion unit installed base. This is quite a spectacular figure for worldwide usage of a Silicon Image invented technology. Operationally, we successfully expanded our R&D capability by opening a third location in order to gain further efficiency from our R&D investments.

Together, all three of our development sites, Sunnyvale, Shanghai and Hyderabad provide us with deep experience of a high degree of efficiency in our development efforts. In addition, we returned approximately $40 million in capital to shareholders in the form of a share repurchase program.

We feel very good about the strategic and operational execution of the company; notably when placed in the larger context of the global semiconductor industry. While we are not fully satisfied with our financial performance, we believe we have positioned the company well for further growth in 2013 and beyond.

Moving now to the business overview of the fourth quarter, I would like to first discuss our Mobile business. MHL continues its growth trajectory. There is now a wide variety of products featuring MHL with an installed based of over 220 million units at the end of 2012. Smartphones and tablets represent 190 million of this installed based. We expect MHL will continue to expand and MHL technology could be incorporated in up to 30% of all smartphones in 2013, up from 20% penetration rate in 2012. This increased penetration combined with growth of the smartphone market will help drive our revenue growth in 2013.

In addition to letting consumers enjoy their smartphone movies and games on the big display, MHL is enabling productivity applications via a variety of MHL enabled tablets, laptops and docking stations. Consumers in emerging markets are increasingly utilizing their smartphone as their personal computer as it maybe their only device. As MHL technology continues to expand from the high end to mainstream, MHL technology will increasingly become a key enabling technology in these new global smartphone personal computers.

Moving on to our CE business now. Going into 2013, we expect that our CE business will stabilize due to the continued adoption of MHL in both DTV and home theater markets. MHL is now a standard feature on a wide variety of TVs, monitors and AV receivers and this will continue to expand.

We expect that in 2013 up to 30% of new TVs will include an MHL accessory port. All of our port processes now include support for both HDMI and MHL and these are increasingly being deployed by our CE customers. MHL has expanded into more than smartphones and tablets including many models of DCVs, PC monitors and AV receivers.

Roku recently started shipping the Roku's Streaming Stick featuring MHL. This has now spawned a growing number of MHL enabled Roku ready TVs and other products including a 3M speaker projector that is bundled with the Roku Streaming Stick. MHL is now establishing itself as an attractive accessory port for DTVs providing power and HD connectivity for accessories like the Roku's Streaming Stick and potentially 60 GHz wireless HD dongles in the future.

Also of note, 4K UltraHD had a broad presence at CE Show this year and was demonstrated by most if not all of the TV manufacturers. 4K UltraHDTVs will initially deliver to the very high end and be quite expensive but we do expect that this capability will become more cost effective and grow in volume over the coming years.

We featured our new 4K video processors at the CE Show this year which not only scales up video to 4K by 2K resolutions but also enhances the picture quality to provide a superior experience for the consumer. Samsung’s new 4K ready Blu-ray player features our latest video processor to provide the ultimate viewing experience.

Moving on to our wireless technology that serves both our mobile and CE businesses, we are pleased that we continue to achieve all of the product milestones we laid out last year. In December, we introduced the UltraGig 6400, the industry’s first single chip ultra low power 60 GHz wireless HD mobile transmitter for smartphones and tablets.

The UltraGig 6400 transmitter is a complete wireless HD solution for mobile devices that integrate a 60 GHz RS transceiver the base band processor and an embedded antenna array into a single IC package. Specifically designed for smartphones and tablets, the UltraGig 6400 enables robust, high definition wireless video connectivity between portable devices and large displays delivering a cable quality connection without wires.

We are sampling the transmitter to a number of mobile device manufacturers and demonstrate the product after recent CE trade show. We believe there is a well established pattern of adding additional functionality and radios into mobile devices including Bluetooth, GPS and Wi-Fi and we believe that 60 GHz is the future of high bandwidth wireless connectivity.

In addition, to a very successful presence by Silicon Image at CES, MHL (inaudible) HDMI licensing and wireless HD also had a very good show as well. We came away more positive about the variety of Silicon Image product and continued growth of the MHL ecosystem and we believe that CES confirmed that Silicon Image remained a key technology leader in the industry.

We're confident that we have laid the foundation for improved growth. Looking forward toward 2013, we see further growth opportunities for both the top line and bottom line and we fully anticipate moving closer to our target business model for global financial metrics.

Towards that end, we have set ourselves four important goals for 2013. Our first goal is to drive growth back toward the corporate long-term target of 15% to 20%. We grew by little more than 14% in 2012 and we are committed to doing better.

Second, given our ability to leverage our operating expenses, we plan to grow net income (inaudible) years at a faster rate than the top line.

Third, we expect to continue expanding the penetration of MHL into mobile and CE devices.

And our fourth goal for 2013 is to continue to execute and drive the success of 60 GHz technology by achieving design wins at two major OEMs and have models in production by the end of this year. Accomplishing these goals will greatly add to shareholder value which is an important focus for us as a management team.

I would now like to turn the call over to Noland.

Noland Granberry

Thanks Camillo. Good afternoon. Before I review our Q4 financial results and performance estimates for the first quarter of 2013, I would like to remind you that unless otherwise indicated gross margins, expenses and earning related items are reported on a non-GAAP basis as described earlier by Mike.

Our GAAP financial results and a reconciliation of non-GAAP measures referenced in today’s call are available on investor relations page of our website www.siliconimage.com. In addition, we have posted our financial metrics page to provide you with our quarterly comparative results.

Revenue for Q4, 2012 was $59.6 million compared to $73.9 million for Q3, 2012 and $58.7 million for Q4 2011. Revenue for the full year of 2012 totaled $252.4 million versus $221 million for 2011.

Product revenue totaled $46.8 million or 78.5% of total revenue for Q4, 2012 versus $62.2 million or 84.1% of total revenue for Q3 2012 and $45 million or 76.7% of total revenue for Q4, 2011.

For 2012, product revenue increased 16.8% to $203.5 million versus $174.2 million for 2011. Our mobile revenue continue to drive our year-on-year growth. For the fourth quarter, it grew 42.4% year-over-year and represented over 64% of total product revenue up from 47% a year ago. For the year, our mobile revenue grew 83.8%, it represented over 59% of total product revenue up from 38% a year ago.

For the quarter, our CE business declined 40% year-on-year represented 25.5% of total product revenue for the quarter. For the year, our CE business declined approximately 29% it represented 30.6% of total product revenue.

Our PC business grew in the quarter on a year-on-year basis about approximately 18% and remained flat for the year representing approximately 10% of overall product revenue down from 12% in the prior year.

Our weighted average selling price for our products was $0.92 per unit for Q4, 2012; $0.99 for Q3, 2012 and $1.21 for Q4, 2011. Product mix is the major factor in the changes in our overall average selling price for products. The major change between 2012 and 2011 was primarily the result of the increased revenue from the mobile business was typically carry a lower ASP.

Licensing revenue for Q4, 2012 was $12.8 million or 21.5% of total revenue versus $11.7 million or 15.9% of total revenue for Q3, 2012 and $13.7 million or in Q4, 2011 or 23.3% of total revenue. For the year, our licensing revenue totaled $48.9 million or 19.4% of total revenue versus $46.8 million or 21.2% for 2011.

Our licensing business continues to perform in line with expectations. As we have noted historically, Q4 is generally a strong quarter as a percentage of total revenue for our licensing business and this Q4 is no exception. On a year-over-year basis, our licensing revenues contributed as expected within our 15% to 20% range. Our overall gross margin for Q4 2012 was 60.2% and as a result of the higher IT contribution and a percentage of the total revenue as well as continued strength in our product gross margins. For fiscal 2012, our gross margin was 59.1% and 59.2% for 2011, tracking well above our long term target of 55%.

Product gross margin was 49.8% for Q4 2012 and 49.6% for the year. Our product margins continue to be strong as a result of favorable variance from improving yields, favorable product mix as well as our ability to continue to leverage our existing overhead. Our product gross margins for Q3 2012 and Q4 2011 were 51% and 49.5% respectively. Operating expenses for Q4 2012 were $27.5 million compared to $30.5 million in Q3 2012 and $29.6 million in Q4 2011. Operating expenses for fiscal 2012 and 2011 were $122.9 million and $112.1 million respectively.

Our fourth quarter OpEx is also slightly significant lower spend in our $32 million to $33 million guidance as it reflects the reversal of certain incentive pay accruals as a result of our not achieving our annual operating planned targets. As noted in our plan, we would recruit approximately $5.4 million for the year had we achieved our financial targets. In addition to the accrual reversal, our OpEx was lower due to other cost savings including lower than planned debt count and project expenses.

Our debt count at December 31 was 6.23 and a slight addition of approximately 75 R&D contractors in India converted to Silicon Image employees in the first quarter of the year. Our headcount at December 31, 2011 was 521. For Q4 2012 net other income was $0.6 million as compared to $0.3 million in Q3 2012 and $0.4 million in Q4 2011. For the year, net other income totaled $1.7 million as compared to $1.9 million for 2011. Stock based compensation totaled $2.2 million for Q4 2012 compared to $2 million in Q3 2012 and $1.9 million in Q4 2011.

For Q4 2012, our non-GAAP net income grew 29.8% year-on-year to $6.2 million or $0.08 per diluted shares. Non-GAAP net income for Q3 2012 was $8.8 million or $0.11 per diluted shares. For Q4 2011, our non-GAAP net income was $4.8 million or $0.06 per diluted shares. For the year, our non-GAAP net income totaled $18.5 million or $0.22 per diluted shares representing year-over-year growth of 13%. On a GAAP basis, our net loss was $3 million for Q4 2012 as compared to our Q3 2012 GAAP net loss of $0.4 million, and for Q4 2011 our GAAP net loss totaled $10.2 million.

For the 2012 year we realized a GAAP net loss of $11.2 million or $0.14 per share as compared to a GAAP net loss of $11.6 million or $0.14 per share for fiscal 2011. Our Q4 GAAP net loss included in our period adjustments totaling 1.2 million as a result of the revaluation of certain intangible assets. This adjustment resulted in lower GAAP expenses for the quarter, recorded adjusted intangible assets with the offset [recordings] of goodwill.

Diluted weighted average shares outstanding for Q4 2012 was 80.4 million versus 83.4 million for Q3 2012. Diluted weighted average shares outstanding for Q4 2011 was 83.4 million shares. Basic weighted average shares outstanding for Q4 2012, Q3 2012 and Q4 2011 were 79.6 million, 82.5 million and 82 million respectively. The current quarter reflects the weighted average impact of the accelerated stock repurchase plan or ASR implemented in November. Through December 31, 2012, the company spend approximately 40 million of it's 50 million plan for the repurchase of stock. The share count as of the end of the year does not reflect the remaining shares to be settled when the ASR concludes in the next few months. Potentially, an additional 1 million to 1.5 million shares will be returned to the company when the ASR program ends.

Moving to the balance sheet, cash and investments as of December 31, 2012, was a 107.5 million versus 145.3 million at September 30, 2012 and 161.4 million at December 31, 2011. The net change in the company’s cash position on a year-over-year basis was primarily the result of cash used for share repurchases, long-term strategic investments and working capital coverage as a result of the increased accounts receivable and the inventory charge taken in December of this year.

For Q4 2012, our accounts receivable totaled 37.9 million or 57 days sales outstanding versus 42 days for Q4 2011. The increase in DSO is the result of timing of shipments and related invoicing related to the quarter end. Our targeted DSO range is approximately 50 to 55 days. Net inventory as of December 31, 2012 was 11.3 million, which represented approximately 8.3 terms on an annualized basis versus 10.1 million or nine turns at December 31, 2011. The year imbalance is net of the 6.2 million charge previously announced. The companies continue to work with our vendor to recover the value of the deflected inventory.

Capital expenditures for Q4 2012 were 2.3 million compared to 2.7 million for Q3 2012 and 2 million for Q4 2011. For 2012, capital expenditures totaled 8.9 million versus 7.8 million for 2011. The increase in capital spending year-over-year is associated with the addition of R&D equipment and IT related equipment, primarily related to the expansion of our facilities in China and India.

This concludes my summary of our financial results. Next I would like to discuss our financial outlook. While we attribute the year with some unforeseen events that impacted our fourth quarter, our 2012 results still reflected 14.2% growth in revenues and 13% growth in earnings as compared to the prior year. We believe we are well positioned to accelerate this growth in 2013, as our mobile business continues to ramp. Also as we see increasing NHL penetration into TV and improved performance at our home theater products, we believe we will stabilize the CE revenue starting with Q1.

The following represents our financial outlook for the first quarter of 2013. Revenue $59 million to $61 million, gross margin 58%, GAAP operating expenses approximately $37.5 million, non-GAAP operating expenses approximately $34.5 million, interest income approximately $1.3 million, non-GAAP tax rate of approximately 30%, Q1 diluted shares outstanding approximately $77 million.

Our first quarter is simply challenging with extremely lower revenue and higher operating expenses due to trade shows, employer taxes and higher takeout cost. However as we continue to focused for shareholder value, it is our expectation that we continue to consistently grow revenue year-over-year as well as grow our profitability year-over-year.

This concludes my remarks. Operator, we will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of John Tanwanteng with CJS Securities. Please go ahead.

John Tanwanteng - CJS Securities

(inaudible) contribute to the revenue slow down in December still ongoing for Q1?

Camillo Martino

No, I think in Q1 as we talked about seasonally low quarter and contrary to that we have still indicated to that product revenue is going to be flat to up and so we consistently focus as pretty as well.

Noland Granberry

I think, one thing if I can apologize I am fighting a cold right now, so my remarks is in responsive to that, so excuse for that. But as you know when you look at our Q1, generally our Q1 is seasonally down and we see, as we gave in our guidance that we are reflecting flat to possibly up Q1, which is not your typical Q1 to Q4 sequential run rate. So we feel pretty good about that.

John Tanwanteng - CJS Securities

Got it. And then as you start to roll-out your wireless products and people start to take notice are you planning to increase your marketing spend for that later in this year and if so what's the magnitude of that?

Noland Granberry

Yeah, John I don't think its kind of that material, I mean it might be some uptick slightly towards the back half of the year, but nothing that's unreasonable that's for sure.

John Tanwanteng - CJS Securities

Okay. And are there any more significant tape outs for the rest of 2013?

Noland Granberry

We do have, I mean we are continuously going through our roadmap as we build products and look to build products to drive future revenue. So there will be tape outs throughout the year. Q1, we actually have a number of tape outs we have a number in Q2 as well. So there are tape outs throughout the remainder of the year.

Operator

Our next question is from the line of Charlie Anderson with Dougherty & Company. Please go ahead.

Charlie Anderson - Dougherty & Company

Camillo, thank you for outlining the goals for the year; I wondered if you could give us a little bit more detail on how much 60 gigahertz revenue you will need to meet your revenue goal?

Noland Granberry

Well, you are straight with that one Charlie. Listen, I think we indicated that this year, we are aiming to achieve revenue growth in line with our model of 15% to 20%. You know, we have some revenue as you know today wireless, in the CE space primarily and PC markets. We anticipate a little bit more revenue towards the back half of this year specifically for Mobile; but we are confident that we can certainly hit the 15% to 20% range for this year.

Charlie Anderson - Dougherty & Company

And I mean I guess another way to ask the question is as you sit here today kind of where is your confidence level on getting those two customers and that being what will drive you to that 15% to 20% growth rate?

Noland Granberry

You know so I'll answer, I'll give you two answers, first of all our MHL is showing very strong growth as it did in than the previous two years, so the trend in MHL and the stabilization in our CE revenue will carry us to within the range that we are looking for. Now going back to your question specifically about wireless, we are sampling now to all the major customers as we talked about; I think the sampling phase is going very well. We are quite happy and pleased with response that we are getting to-date. Everybody that we are showing it to clearly recognizes that the 60 gigahertz wireless solution that we are offering is definitely a cable quality solution in a wireless world. So at this point, I would say we are confident about our abilities to launch the 60 gigahertz technology into the Mobile platforms.

Charlie Anderson - Dougherty & Company

And then you mentioned CE that stabilizing and you also meant some of the 30% of TVs coming from a very low number in 2012, so I was kind of interested in how much of that uptick you are capturing versus the SoC capturing sort of your core processor versus call it a MediaTek solution or something like Mstar solution something like that?

Camillo Martino

Yeah, obviously it's going to be a mix. As we've talked about in the past, pretty openly, the low-end and even probably the mid-range is going to be taken predominantly by the SoC with MHL integrated. So this is great validation that the standard is working. In fact, it's very similar. So if you go back two years ago, HDMI; it was only when the SoC companies started to endorse it, that truly became a global standard and the volumes really started to take-off and so we see it following a similar path here where the SoC with MHL is going to be penetrating the low and mid-range. So that's a great sign and obviously we will take some of that as well towards the higher end models.

Charlie Anderson - Dougherty & Company

And then just one last one from me; I noticed that wireless was giving you about a $1 million of revenue licensing for the first time in the quarter; I was kind of curious what the trajectory of that looks like in ‘13?

Noland Granberry

Wireless licensing revenue, I think we had, our mobile revenue continues to grow as the MHL improves. Our CE based or HDMI world is continue to grow. I think there is a misunderstanding there, Charlie.

Charlie Anderson - Dougherty & Company

Well, I think, just look, can you guys earlier in the year, you were doing $300,000, $400,000 of licensing revenue from Mobile and now you are up to $1 million a quarter. I wonder are we going to start to see, you know, a couple million dollars a quarter, stuff like that into ‘13 at any point?

Noland Granberry

So, when you are saying wireless, do you mean in mobile?

Charlie Anderson - Dougherty & Company

Yes, sorry. The end market within the licensing?

Noland Granberry

Yeah, I mean, I think to Camillo’s point. The big adoption or increasing adoption of MHL in the market, both on the mobile side as well as in the CE that standard takes off and the increasing adopters where we are up over 180 adopters provide us with the opportunity to see the royalties increase; granted if you are aware that how the arrangement is set that we capture our licensing’s from the adopters and not the promoters or the (inaudible) so that’s one thing to consider.

Operator

Thank you. Our next question is from the line of Raj Gill with Needham & Company. Please go ahead.

Raj Gill - Needham & Company

Yeah thanks and if this question was answered before, I am sorry I came on late, was on another call. The OpEx, Noland just quick question on that, it seems like it’s on a non-GAAP level jumping from like 27.5 to 34.5 from 4Q to 1Q and can you talk a little bit about that, you talked about some tape out costs, maybe to struggle though, what’s going on in the OpEx?

Noland Granberry

Yeah, I think what the news that we talked about on our prior call, we indicated that, we then and Camillo even noted in that, as well as in my prepared remarks that we did not hit our target, planned targets and as such Q4 we essentially reversed and did not accrue for our incentive plans which resulted in Q4 being lower than we would have. And so if you really want to make a comparison, I would compared Q1 of last year and Q1 of this year where we were about 33 million last year and comparison of last year to this year the difference is really an additional tape out cost of project and as well as some uptick from compensation costs as well on a year-on-year basis. But that is more of a real comparison relative to our spend versus Q4 to Q1.

Raj Gill - Needham & Company

(Inaudible) associated with 60 GHz or MHL or…

Camillo Martino

Actually it’s across both so it’s covering both.

Raj Gill - Needham & Company

One quick question, just housing keeping, on the gross margin, the non-GAAP gross margin for what again I am sorry for 4Q?

Camillo Martino

The non-GAAP gross margins for fourth quarter?

Raj Gill - Needham & Company

Yeah.

Noland Granberry

60.2.

Raj Gill - Needham & Company

60.2 so there was $6 million of inventory run rate down that was excluded from…

Noland Granberry

That was not included when we highlighted, that was the non-GAAP item it wasn't included in the non-GAAP results.

Raj Gill - Needham & Company

Just a real quick on the MHL part of the business, the attraction that you are getting over there, you talked about get MHL on to new product segments like TVs and monitors, what about MHL expanding outside kind of the new core smartphone customer base, are you seeing a pick up on any of the Windows based phones, any of the (inaudible) range systems, are you increasing kind of the (inaudible) sense on increasing in any other of your existing accounts just for trying to get a sense of MHL on the handset side, how much of that is really going spreading to more and more customers?

Camillo Martino

Sure, already. I think we are making very good progress in all Android platforms. We continue to grow across the board not just in Korea but in our all geographies frankly and so we are happy with that progress. Now beyond that, I think you talked about, you asked about Microsoft, and (inaudible), Blackberry, the operating system, at this point in time, I would say that very consistent with what we talked about in the past, we are working with other OS vendors and companies like Microsoft and others to encourage them to use MHL.

We think we are confident about the future of MHL specifically because of the tax ratios. If you consider what we discussed earlier we are under 30% of televisions and up to 30% of smartphones adopting MHL and that clearly is an ecosystem where a lot more companies will be paying attention to this. There's no doubt about that and beyond that it was automotive, I mean you may have noticed at CES event you had some car manufacturers specifically Hyundai for example JVC and others demonstrating MHL on the show floor.

Hyundai had a concert vehicle with MHL there. So that is definitely taking shape as well, that goes well beyond the smartphone application and TV but we are quite excited about the future of MHL in automotive. We think that's a great exciting application, it’s a very sticky application and it’s going to go a long way.

Raj Gill - Needham & Company

And last question on 60 GHz, you know, the sampling is going very well, that's excellent, could you maybe provide what's with some of the feedback from the OEMs with respect to this new technology, it essentially is a new technology as you kind of you know I think very effectively outlined 60 GHz and comparing that to Bluetooth or Wi-Fi technology that was adopted in handsets. This is new technology what's been kind of the feedback, why are the OEMs kind of excited about it maybe you could talk a little bit about that, that would be great, thank you.

Camillo Martino

Sure. Look I think all of the customers are impressed with the technology. I think they definitely can see that this is cable quality like performance in a very, very small form factor, really it’s a tiny, tiny form factor and so that's not being able to be achieved before and so they are very happy about that.

As we have talked about in the past, this is no different to a new radio being added to a mobile platform and using the example that you've used just in your question, if you look at Bluetooth, if you look at Wi-Fi, you look at GPS, these are all examples of radios that were added to a mobile platform once a used case was established and by the way everyone of these applications I just talked about they all had a starting price of over $10 as a solution.

So I would say at this point with our 60 GHz technology, we are in a very similar position. We are coming into market with great technology, it definitely solves a used case application and we believe that over time you are going to see 60 GHz being adopted in a very, very material way much like some of the other technologies like Wi-Fi and Bluetooth, etcetera. We are also adopted and so I think this is, we are quite confident and no latency is a great technology.

In fact, even for some applications depending on the application there's actually less power that's being used for 60 GHz than Wi-Fi, its kind of surprising maybe its even amazing to a lot of people who are not involved in the technology but there are some absolute gaming applications where we can demonstrate beyond reasonable doubt that 60 GHz is lower power than using Wi-Fi for the same applications, that's quite important in mobile, very, very important in mobile.

Operator

Our next question is from the line of Christopher Longiaru with Sidoti & Company. Please go ahead.

Christopher Longiaru - Sidoti & Company

So my question kind of piggy backs on the automotive here. It sounds like things are progressing well. Are these 2014 vehicles that we're looking at or is it the next design cycle for automotive?

Camillo Martino

I would say the automotive industry works a little bit different. They call it model year but the actual production year might be six months or more ahead of that model year, right? So, I would say that there is some applications today which is, like an after market type application in fact JVC, Pioneer…

Noland Granberry

The wireless, HD dongle even that kind of…

Camillo Martino

JVC and Pioneer has an after market product today in MHL that you can buy adding radio application for example to the car. So you know that applications like that are available right now. But beyond that, if you look at right end of vehicle itself, I would say the second half of ‘14 would be the earliest possibility and that’s more of a model year ‘15 sort of terminology as the automotive industry would call it. So I would say second half of ‘14 is definitely possible to start saying MHL mainstream in the vehicle and production.

Christopher Longiaru - Sidoti & Company

And the content there is obviously lot higher.

Camillo Martino

Yes, the silicon content value is much higher. That’s correct.

Christopher Longiaru - Sidoti & Company

And are the gross margins, around the same on the targets or are they higher or lower on the automotive stuff. Can you just give us a little guidance there?

Noland Granberry

We think it will be much better than what we have, that we're seeing in the current product. So I think that’s positive for us.

Christopher Longiaru - Sidoti & Company

Just in terms of your visibility right now, can you give us an idea of how basically how far you can see out what the lead times are at this point?

Noland Granberry

I think our guidance we are guiding out of quarter so we are just truly looking at our visibility throughout the next quarter, so that's what we thought.

Christopher Longiaru - Sidoti & Company

But I mean in terms of your lead times what are your order lead times right now?

Noland Granberry

We typically will see anywhere between eight weeks to 12 weeks as far as your typical timeframe. I think we are in line with where that really runs…

Christopher Longiaru - Sidoti & Company

(Inaudible) there is anything unusual at this point?

Camillo Martino

In the eight week switch product was flat.

Operator

(Operator Instructions) Our next question is from the line of Richard Shannon with Craig Hallum. Please go ahead.

Richard Shannon - Craig Hallum

Hey guys few questions from me may be this one is for Noland on OpEx, I think you made comments that first quarter expense (inaudible) but you also referred that potential for some other keep our cost beyond that how should we think about the trends of OpEx on a pro forma basis after the first quarter?

Noland Granberry

Yeah I think, two things I wanted to make a point Richard is that we fully expect to continue to invest in the business to make sure we are driving our future roadmap. So from an overall spend, we do anticipate may be a similar run rate, but at the same time I think the key is that we are focused on driving profitability. So as we look at what’s happening quarter-to-quarter relative to our revenue, we will be focused on managing which we have done in the past as managing that spent to ensure we are driving profitability with the goal of demonstrating increasing profitability year-on-year for each quarter. So I think you will see the run rate been similar to where we are right now, but again like I said, it will really be driven by we’ll stay focused on driving that profitability.

Richard Shannon - Craig Hallum

Okay, fair enough. Then to your question on 60 gig product here its all perceive the last question is here. Camillo have you gotten a sense from these potential customers their marketing approach is using your solution will be more kind of a mainstream product or it will be especially target at that certain used cases like gaming as for example, how do you invasion your potential customers are going with this?

Camillo Martino

Yeah, I think initially this is going to be focused on gaming applications. So that is the very strong use case, strong value proposition today, and I think from there overtime we know in years to come you are going to see more of a main stream. I think in the launch phase, beginning phase it’s more of an entertainment/gaming productivity applications.

Richard Shannon - Craig Hallum

Okay, fair enough. Couple more questions from me. As you look at your MHL mobile business this year, I think in response to some previous questions, and you talked about some diversification 2013, does that mean you expect to your largest customer in the mobile space to be lower percentage of mobile in 2013 than in 2012?

Camillo Martino

Its hard to say, at this point in time its still early in the game I think everybody knows which company you are talking about they are very aggressive and they have very aggressive plans, ahead also. So I think at this point its hard to say. We do expect growth in all geographies as I mentioned, but I think its maybe a little bit too early to predict percentages up or down at this point regarding between those companies.

Richard Shannon - Craig Hallum

Fair enough then just to want to get a sense of that. Two more questions there sorry, Camillo filling up on kind of 60 GHz dynamics, what was your reaction to announcement to the WiFi alliance and the WiGig alliance or whatever they, what they call their group, what was your reaction to their merging both in kind of the near term and longer term and some potential impact on your Ultra Gig product.

Camillo Martino

Sure, I mean first of all we expected that announcement many months ago and I'm surprised it took that long to actually happen. That's the first line. Second of all, I think that announcement further validates that 60 GHz is an important technology in the years to come. There is no way absolutely no way WiFi will even consider merging with WiGig if they didn't believe that 60 GHz wasn't important technology in the future. So I think that to me is all goodness. In the years to come it’s a great thing that we will see the fruit in years to come.

Richard Shannon - Craig Hallum

Just a last quick question, and thanks for your patience on this. Do you anticipate recharging the share repurchase plan after its exhausted here or was this kind of a one time deal that you announced back in November.

Noland Granberry

So as you know Rich we after the ASR that we've implemented and that actually will run for the next few months. We will see that wrapping up in the next few months. And as I said in my remarks we expect that we will pick up maybe another 1 million to 1.5 million shares. We will still have about 10 million left under the existing plan and so we will work closely with the Board to establish our approach as far as the closure of that plant and then we will consider anything, we’ll look to consider anything after that.

Operator

Your next question is from what line of Tom Sepenzis with Northland Capital Markets.

Tom Sepenzis - Northland Capital Markets

You were working on a dual mode wireless HD wireless and WiGig radio, are you able to do that in the same size or same form factor that was shown at CES or is that something you think you will deliver by the end of this year.

Camillo Martino

You know Tom I think we've already mentioned that our radio from a technical standpoint already supports both 60 GHz as it stands to date, that's been there for a while. So we are very well placed for that. That's specifically in the Gen3 radio. So that's our problem. Beyond that I think we've already talked publicly that we joined the WiGig alliance maybe six to nine months ago, maybe nearly a year ago now, you know and so we did that with an intention that at some point in time that we will try to take the status of discussion off the table. We believe we definitely have the best technology available and so we just want to, we want to demonstrate technology, the best technology in the world, without having to worry about which standard it is. So I think you are going to see in the coming year or so more progress from Silicon Image in this area. So right now we are wireless HD standard as should be obvious to you, but in the future you are going to be seeing WiGig technology as well from us as we go into other applications like data. Wireless HD is more focused on video and gaming and WiGig is more focused on data. So that's the distinction between the two.

Tom Sepenzis - Northland Capital Markets

And are you seeing any kind of pushback from the handset OEMs? The 5 GHz technology are just now a couple of weeks away from launching. Is there any kind of push back, people saying look we just have to do 5 GHz this year and we will get to 60 gigahertz next year or do you still assume that people are looking actively at this as well?

Noland Granberry

Unless what you mean by 5 GHz just launching, I mean 5 GHz gigahertz has been around for a while.

Tom Sepenzis - Northland Capital Markets

In the handsets, no one actually incorporates them in to handset and stuff.

Camillo Martino

(inaudible) sure. You know, I think we addressed this question a little bit earlier in the sense that we think that at the beginning stage, this is going to be very well focused and positioned on gaming and entertainment type of applications. That’s the first application. So this is not something you are going to see in a 100% of smartphones from day one. So this is very targeted towards a specific application and it does not replace 5 GHz. Remember, as we took, this is an additional radio just like Wi-Fi was added, Bluetooth was added, GPS, these are all additional radios for a very specific use case. So, 60 GHz in this case is an additional radio for a very specific application and then overtime, you are going to see that really expand to other platforms. So at the beginning stage, it's a pretty focused launch plan.

Tom Sepenzis - Northland Capital Markets

Yes, that what we like, the highest, the high end on the [interest] there right. And then, not the hard part; Noland, if I can just ask, last year OpEx dropped about 3 million in Q2 versus Q1. Should we be looking at kind of the same thing here this year or was some of that due to just operating efficiencies as you follow the Indian group?

Noland Granberry

Yeah that’s some I would not expect the same sort of decline this year as we presented last year. I think as I mentioned in earlier, we are continuing to make sure we have worked out our roadmap and we are going to be very conscious of increasing our profitability, so that’s where our focus is.

Operator

At this time there are no further questions in queue. I would like to turn the call back over to Mr. Martino for closing remarks.

Camillo Martino

Yes thank you again for participating on today’s call and during the quarter. Noland will be participating at the Wedbush and Northland Conferences in March. If you are attending those conferences please plan to come to our presentation, and as we continue to execute and deliver our strategic goals we are focused on delivering shareholder value. We are eager to share an update next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. If you would like to listen to a replay of today’s conference please dial 303-590-3030 or 800-406-7325 and enter the access code 4588511. We would like to thank you for your participation and you may now disconnect.

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