Executives
Arthur O. Whipple – Chief Financial Officer, Vice President Finance & Secretary
Ralph H. Schmitt – President, Chief Executive Officer & Director
Analysts
Christian Schwab – Craig-Hallum Capital
Sandy Harrison – Signal Hill Group, LLC
Richard Shannon – Northland Sec
Michael Wasserman – Moors & Cabot
PLX Technology, Inc. (PLXT) Q4 2008 Earnings Call January 26, 2009 5:00 PM ET
Operator
Welcome to the PLX Technology Inc. fourth quarter 2008 earnings result conference call. Today’s call is being recorded. We’ll open the conference up to questions and answers after the presentation. At this time I’d like to turn the call over to Art Whipple, CFO of PLX Technology.
Arthur O. Whipple
I will start the session with a review of our fourth quarter and 2008 financial performance and Ralph Schmitt, our CEO will provide more information on our business. I will then provide first quarter 2009 financial estimates. There will be an opportunity for your question after our prepared remarks.
As we begin I’d like to point out that certain statements made in the course of this conference call regarding our expectations and our associated projections will be forward-looking statements. These statements will include comments related to the introduction and adoption of new products, the projection of financial results, the integration of our Oxford acquisition, the development of next generation technologies and other areas and will be made both in our prepared remarks and in the subsequent Q&A session.
Our forward-looking statements deal with future events and are subject to risks and uncertainties and our actual results could differ materially from our current expectations. Some of the factors that could cause such differences are described in our press release dated January 26, 2009 and in our SEC filings including our reports on Form 10Q for the first three quarters of 2008 and on Form 10K for the year ended December 31, 2007.
Now, let’s take a look at this quarter’s and this year’s financial results. Net revenue for the year ended December 31, 2008 were $81.1 million compared to $81.7 million in 2007. PCI Express revenues expanded from 35% of revenues in 2007 to 47% of revenues in 2008. Net revenues for the fourth quarter were $14.2 million. Revenues were down 36% from $22.1 million for the same quarter a year ago and down 32% from $20.8 million last quarter. These numbers reflect the recent and broad based decline in demand.
PCI Express revenues represented 45% of total revenues for the current quarter, up from 44% last quarter and up from 42% in the same quarter a year ago. Gross margin for 2008 was 59.6% compared to 60.6% for 2007. Although our margin on PCI Express products continues to improve, overall gross margin decreased slightly due to the increased mix of PCI Express products. In the fourth quarter, gross margin was 59.4% up from 58.5% in the prior quarter and down from 60.6% in the same quarter a year ago.
Operating expenses in the fourth quarter included several unusual items. We test our goodwill and intangible assets for impairment each year in the fourth quarter. The significant decline in our share price the latter part of 2008 had us trading below net assets then below net tangible assets and at least for a few days at the end of the year below cash. As a result, we have fully impaired the goodwill that we record for the Sebring, [Inaudible] and NetChip acquisitions. We have also fully impaired the remaining intangible assets associated with those acquisitions. These non-cash charges amount to $35.5 million in the fourth quarter.
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During our review of the goodwill and intangible asset impairment we also evaluated other long lived assets. We purchased our headquarters building in Sunnydale in 2000. The building is ideal for our operations and we have no plans to relocate or sell the building however, the flood of commercial property in silicon valley has significantly reduced selling prices and our building has now been appraised for $18.7 million less than our carrying value and we have taken a non-cash impairment charge in that amount.
None of these impairment charges are tax deductible. They will result in lower depreciation, about $550,000 per year and lower intangible amortizations about $742,000 last year, in the future. We also had operating expenses associated with our acquisition of Oxford Semiconductor. The acquisition closed in January, 2009 and we are subject to the new purchase accounting rules spelled out in FAS 141R that became effective on January 1, 2009.
Under the old rules certain deal costs including attorney and bankers’ fees were capitalized and ended up in goodwill. Under the new rules these costs are expensed as incurred. The fourth quarter included $756,000 of such costs. Operating expenses for 2008 included R&D costs of $27.1 million, up by 11% or $2.7 million from last year and SG&A costs of $15.3 million, down 3% from last year. Roughly equal increases in EDA tools costs and outside product development costs generated the increase in R&D expense.
Operating expenses for the fourth quarter excluding impairment charges and deal costs were $12.4 million, a sequential increase of $781,000 or 7% from $11.6 million in the prior quarter. As expected, R&D costs rose by $797,000 primarily due to higher external product development NREs and related charges. SG&A spending was flat. Interest income expense and other net for the fourth quarter was $344,000, up slightly from $335,000 in the previous quarter.
Our 2009 provision for tax was $126,000. This provision includes federal, state and foreign taxes. While we had a significant loss this year, significant portions of our expenses including impairment, stock compensation charges and amortization of intangibles are not deductable for tax purposes so we had some taxable income in most jurisdictions. We continue to provide a full valuation allowance on our deferred tax assets. We will have about $16.6 million in benefits that can be used to reduce taxes on our future profits when business improves.
Our net loss for 2008 was $56.5 million compared to income of $1.2 million last year. Excluding the impairment of goodwill, intangibles and the building and cost related to the Oxford acquisition, our loss was $1.5 million.
Next, I’ll review some of the highlights of our balance sheet. Cash and investment balances grew by $3.1 million in the fourth quarter and by $564,000 during the year to $47.1 million. we repurchased $6.5 million of our common stock this year. We invest in US government agency securities and money market accounts with a limited exposure to corporate paper. The last of our commercial paper is expected to mature at par on April 1st of this year.
Accounts receivable were $5.7 million down $4.8 million from the beginning of the year reflecting much lower sales in November and December. We ended the quarter with 37 days of receivables compared to a DSO of 44 days at the end of last year. Net inventories were $7.3 million at year end, down slightly from last quarter and the beginning of the year. We have approximately 118 days of inventory on hand compared to 78 days of inventory at the beginning of last year.
This ratio points to the dramatic drop in cost of goods sold associated with a recent decline in revenues. We are pleased that we were able to react quickly enough to reduce inventory purchases and reduce inventory in the face of falling demand. While not recorded on our books, our distribution channel was also able to reduce their inventories by more than $1.9 million.
Now, Ralph has some comments on the business.
Ralph H. Schmitt
Q4 2008 was a very difficult quarter for PLX due to the macroeconomic impact on our business which has greatly affected the whole semiconductor market. The PLX employees did an outstanding job in staying focused on closing revenue generating opportunities and the executive team was intimately involved with customers in order for us to fully understand and manage this situation that we found ourselves in.
Every month of the quarter saw our turns business get worse as customer demand reduced and they worked through their inventories. Every region of the world was impacted by at least a 20% reduction and as Art mentioned, our channel partners reduced their inventory levels by $1.9 million directly impacting our revenue due to our selling model.
I have to say for this is the first time in my career that I’ve seen such broad based softness with no particular market, geography or application being significantly worse than others. Our approach to the downturn is to even further refine focus on customer design activity. It is our belief that with this focus we can gain market share. We have significant new products that are well aligned with customer needs positioning us well. We also have decided to aggressively expand in to adjacent markets that make the company stronger from both a product and financial standpoint.
Our execution towards this goal has been rapid with the acquisition of Oxford within one quarter. This gives PLX the ability to grow in another market segment that is synergistic to the PCI Express effort. It more than doubles our servable market and evolves us in two rapidly evolving markets. A few key points I’d like to make about Oxford or now what we’ll term PLX Storage. Oxford has been an interconnect company that was considered an innovator in such areas as FireWire and USB 2.0.
Over the past few years it has refined it’s approach to dominate the storage system on chip market, SOC market. This involves commitment in understanding system level issues in software. This is very analogous to the way that PLX focused its efforts in PCI Express which is one of the reasons there is an excellent cultural and technical match between the two companies.
Due to this focus, Oxford has become the market leader in SOC products for direct attached storage market and the team has now entered the network attached storage market with the idea to make it as simplistic as direct attached storage for our customer. This is the type of innovation and leadership which we expect at PLX.
Just to make one more comment about our Q4 performance, I was also impressed by the operations team as they executed well in the quarter by slowing down the supply chain in order not to grow inventory. This is very significant in cash conservation as our [WIP] was reduced over 30% keeping our net inventory flat. This quick reaction was due to previous experiences in market down turns and our goal was cash preservation and I’m pleased at how the team helped to make this happen.
We’re anticipating much the same market environment during the first quarter of 2009. We’ve seen no significant changes to our business and our customers continue to have very little visibility in their end demand. Now, let me turn it back over to Art for some further first quarter discussion.
Arthur O. Whipple
Now, for a look at our first quarter 2009 business outlook. Please remember that the following statements are based on our current expectations. We do not intend to update or confirm this information during the quarter. Our projections this quarter are much more complicated as a result of our acquisition of Oxford Semiconductor. The audit of Oxford’s 2008 results is well underway but not yet complete.
Their net revenues are expected to be approximately $37 million for the year just ended and their quarterly gross margins range between 48% and 61% in 2008. They averaged 54% for the year. We plan to issue an 8K to disclose Oxford’s 2007 and 2008 financial statements in late February. We will consolidate Oxford’s operation and our operation beginning with the month of January. There will be significant charges to operating expense for deal costs, severance costs and other adjustments needed to record the acquisition.
We have just begun the valuation work for this acquisition and the effect on expenses in the first quarter is uncertain. We do expect however, that all such costs will be recorded in the first quarter. We had 157 employees at the end of the third quarter. At acquisition Oxford had 117 employees. By the end of the first quarter 2009 we expect that we will have reduced headcount for the combined entity by about 23%.
We are taking a number of additional steps to reduce costs. We have eliminated variable compensation and bonus plans for all employees. We’re planning numerous other cost reductions, we’re negotiating with suppliers for lower costs and we are telling customers not to expect routine price reductions if they fail to purchase the volumes that their pricing is based upon.
Our visibility in to customer demand and channel dynamics is limited. Based on customer and channel data we believe that we will have revenues of at least $14 million. However, there are identified and estimated opportunities that may come in to the first quarter that could increase this number to as much as $18 million. We are not seeing degradation in gross margins but the effects of the accounting for the Oxford acquisition will incur in the first quarter.
Our operating expense for the first quarter will also be increased by the Oxford acquisition. We’ll have new intangible assets to amortize and the remain deal costs will be significant. We will also have severance costs associated with the reduced headcount. We expect our non-GAAP R&D and SG&A expense run rate including incremental Oxford cost for 2009 to be up about 19%.
At this point I’ll turn it back to you Ralph.
Ralph H. Schmitt
Just a couple of comments. PLX I think is being very fiscally responsible in adjusting our cost model to match a lower revenue base due to the weakened environment. We’ve already taken actions to quickly reduce the combined PLX and Oxford op ex by 30% while maintaining sufficient R&D to deliver at least four platform products and a number of derivatives during 2009.
This will take our Q4 consolidated op ex run rate from approximately $18.5 million to $13.5 million in the second quarter of ’09. We’re bullish on the long term prospects for both the core PCI Express switching business and the consumer based storage interconnect business. We have leading positions and products in both these proprietary product areas. Our new products in 2009 will extend our lead in features that allow our customers to differentiate their products and for us to gain market share.
We’re committed to deliver a Gen3 PCI switch family and a USB 3.0 product during this year to meet the leading edge needs of large customers like Western Digital and CGate in storage as well as HP and Intel in Gen3 PCI Express enabled system. We recently started sampling our next generation Gen2 PCI Express switch family with outstanding acceptance at all major server manufacturers and a significant number customers in storage and communications. This product will generate revenue later this year and in to 2010.
At CES, EMC Iomega announced a network attached storage product based on the second generation Oxford silicon. While Oxford has had a leadership position in direct attached storage this new product opens a new high volume market that the company previously did not service. We expect the NAS products to grow significantly during 2009. At PLX we clearly have near term next gen products that have recently been released in both switching and consumer storage markets allowing us to continue to lead and differentiate in these applications.
That ends our prepare remarks and now we’ll open the call up for questions.
Questions-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Christian Schwab – Craig-Hallum Capital.
Christian Schwab – Craig-Hallum Capital
The PLXT on a standalone basis what is that revenue going to be in Q1 without Oxford?
Arthur O. Whipple
We haven’t broken that out because we’re really struggling with this at this point. We think the combined is going to be this broad range of 14 to 18. But, candidly at this point there’s an awful lot of unknown in that space so we haven’t broken that out for you. I’m sorry.
Christian Schwab – Craig-Hallum Capital
Do you think that your business follows other people in the peer group down 20% give or take? Is that a fair place to start?
Arthur O. Whipple
I think that’s probably in the right range. But again, all of our mechanisms that we use for forecasting revenues are giving us different answers at this point so it’s very difficult to give you something that we’re comfortable with.
Christian Schwab – Craig-Hallum Capital
Where do you think inventory in the distribution channel is for your products?
Arthur O. Whipple
For just our channel which is just our distribution system it came down about $1.9 million. I think internally we’re expecting it to come down a little more than that actually. What’s hard to see is what actually happened at our end customers and through the CMs that they deal with. It’s hard to know what kind of declines in inventory you saw through there.
Ralph H. Schmitt
What we did see though is that the ship outs to those customers was higher than our ship in, in to our distributors. So, the demand is still there obviously, at a lower rate than it was before.
Christian Schwab – Craig-Hallum Capital
Can you quantify that for December? In terms of weeks of inventory on hand where does it compare to historical?
Arthur O. Whipple
I think it’s actually not all that far off. We’ve kind of been in the low 40 days. I think historically it might have been in the high 30s but it’s really not an unusual number.
Ralph H. Schmitt
It’s moved up about four days.
Christian Schwab – Craig-Hallum Capital
On the operating expenses just kind of back of the envelope what you said that $6.5 million which you guys did this quarter although I’m sure you’re not getting rid of all of the Oxford people but a 30% reduction almost eliminates all of that. Was that the original plan when you guys were going to do this?
Ralph H. Schmitt
We sort of separate it out in to two categories if you want to call it that. One is getting the synergies that we thought naturally we would get by combining the two companies which was a much lower number than that number. Then, we looked at the corporation as a whole and we prioritized projects and activities and then made some of the more difficult decisions to dig down deeper to do what we thought was fiscally responsible.
Christian Schwab – Craig-Hallum Capital
So in essence the acquisition, should the markets recover to some semblance of stability this year, the acquisition will probably prove to be more accretive than you originally thought?
Arthur O. Whipple
Yes, if you want to look at it from that perspective yes. I look at it from the perspective as a company as a whole. We have to get back to a profitable state and get there as rapidly as we can without harming the structure of the company and the ability to grow.
Christian Schwab – Craig-Hallum Capital
When would you anticipate being profitable again if you had to guess?
Ralph H. Schmitt
That’s the million dollar question. We believe there will be a somewhat mild recovery on the back half of the year and we don’t think that’s just purely optimistic. I kind of break the whole cycle in to a number of phases and we’ve gotten past what I call the phase one part of the equation which is where there’s mass push outs and cancellations, that’s definitely stopped at this point and its more of a normalized rate.
Next phase is when you start seeing near term immediate orders and we’re seeing drips and drabs of that but I can’t say it’s a trend yet but I do believe that within the next few months that will start picking up and that’s going to be a tell tale sign of how quickly things turn themselves around.
Christian Schwab – Craig-Hallum Capital
Do you have those numbers Ralph on ship out, ship in before I let you go?
Ralph H. Schmitt
It’s about $1 million difference between the two.
Operator
Your next question comes from Sandy Harrison – Signal Hill Group, LLC.
Sandy Harrison – Signal Hill Group, LLC
Let me come at a question asked before a little bit differently, what do you guys think that your Oxford revenue could be for Q1 ’09? Is it easier to start with that or are they facing many of the same things that others are facing?
Ralph H. Schmitt
I think the way Art characterized it is true. We’ve got a fairly wide range of different attributes in both businesses. Clearly when you look at Oxford, the storage business, Q1 is also seasonally down as well as you’ve got the overall economic impact that you’re dealing with.
Sandy Harrison – Signal Hill Group, LLC
So sort of moving away from the immediate thing in front of us, the March quarter, which like you said with visibility and everything else it doesn’t make sense, when you exit ’09, let’s just take a look in to our cloudy crystal balls, when you exit ’09 Ralph what would you like the company to look like from a revenue make up PCI Express versus storage versus your other products? The classic pie diagram, how do you see us exiting that?
Ralph H. Schmitt
I believe you’ll see us exiting almost a third in each category. Kind of legacy a third, storage and PCI Express; PCI Express may be a little bit bigger than a third. We still see significant growth opportunities in both areas, in both PCI Express and storage as new platforms are coming out. I mentioned the one platform in the storage NAS space which is a fairly significant customer. We have a few more of those happening this quarter which will help as well from that perspective and the same holds true on PCI Express and some of the server platforms that are being deployed, we’ll see some new ones this quarter as well.
Sandy Harrison – Signal Hill Group, LLC
If you were to look, and you guys talked a little about this before, what do you see as your challenges for the success of Oxford? Is it a competitive positioning, is it your ability to penetrate these accounts? What do you see as your biggest challenge to being successful at this?
Ralph H. Schmitt
Our biggest challenge there is having a cost effective solution as you go to the next generation products. The big dislocation in the market that will happen somewhat in ’09 but I really think it’s more of a 2010 event is USB 3.0. It’s going to open up to a few more competitors and we have to make sure that we are effectively cost competitive. We will have the system expertise and the product expertise as well as the customer connection so it’s really ours to lose.
Sandy Harrison – Signal Hill Group, LLC
The lastly, for some reason I didn’t catch all of your thoughts on the expenses, sort of how we came in to it versus where you thought we would be in Q2, I got jumbled on that. Is that something you could revisit real quick for us?
Ralph H. Schmitt
I guess I’ll call them broad based numbers, if you combine the op ex in Q4 of the two companies we’re running at roughly $18.5 million. By Q2 of ’09 that should be down to roughly around $13.5 million. I’d say it would be relatively stable for the balance of the year. There may be a little bit of fluctuation between here and there if there is a tape out or two, that tends to move it but it’s not around people or heads.
Arthur O. Whipple
And the focus on the second quarter number is obviously because we’ve got a lot of things happening in the first quarter with the acquisition.
Ralph H. Schmitt
We’ll get a lot of benefit in Q1 but as Art pointed out there’s other expenses that will pull in there and it will look like it’s probably a bigger number.
Operator
Your next question comes from Richard Shannon – Northland Sec.
Richard Shannon – Northland Sec
Maybe just a follow up on the op ex question, maybe how you kind of arrived at your goal for the year. Were you trying to define that in terms of the product family that you wanted to go after and how you’re going to invest for the next generation or was there any sort of more determined outlook to get to a cash flow or earnings breakeven fairly quickly?
Ralph H. Schmitt
Well, it’s a combination of both. You can’t do one without the other. The first thing we did was we really looked at what programs we had in place and what we felt we needed to keep and build on the position that we currently have. When we did that, that’s why I mentioned in the text, there were really four what I call platform products and those are all ground up significant designs, two in the storage area and two in PCI Express.
Then, there’s a number of derivative products out of that but let’s just stick with four. That should be more than enough to help us maintain the position we have in both of those end markets. We then looked at what lower level activities we were doing that may not add as much value and we made some difficult decisions to cut some of those. It’s not going to have an impact in the revenue near term. We made the assumption that from an ROI perspective it wouldn’t have the same kind of return as ensuring that we get these platform products out.
So that being one side of the equation, at the same time we said okay we had to have a reasonable understanding where we thought the revenue would be and where we wanted to try to get to from a breakeven perspective and then bounced those two things off of each other kind of constantly. We did, I’ve got to tell you, some very diligent work here to get to where we were.
We made those difficult decisions and we think we’ve now appropriately sized the company and can move forward from here so I don’t have employees worrying that we’ve got some more events coming.
Richard Shannon – Northland Sec
Maybe I’ll ask that question in a slightly different manner, it seems like you’re sizing the company more so for the longer term opportunity and perhaps if things don’t improve as fast as you would like we might see some minor earnings and/or cash flow losses here for a couple or few quarters. Would that be a fair assessment?
Ralph H. Schmitt
I think that’s a fair assessment for the Q1 and Q2 timeframe, definitely.
Arthur O. Whipple
Clearly, preservation of cash is something that’s important to us and even with these fairly negative plans for Q1 and Q2 we are planning to burn some cash this year but not fabulous amounts.
Richard Shannon – Northland Sec
Ralph, I wanted to follow up on the brief comments you made on the four platform products, you mentioned two in storage and two in PCI Express. I presume you are including USB in one of the two storage platforms or is that a derivative?
Ralph H. Schmitt
That’s definitely one of the platforms, yes.
Richard Shannon – Northland Sec
So is the other platform is that related both to NAS and DAS or how does that work?
Ralph H. Schmitt
Yes. We have a few in work right now so for instance we’re about to release a new DAS platform product, kind of as we speak it is being taped out. That is really not part of the four that I’m talking about, these are kind of all through the year. It will be roughly a DAS and a NAS product and then two PCI Express switching products.
Richard Shannon – Northland Sec
Maybe a couple of question for Art, on shares outstanding how do we account for the shares outstanding in the first quarter given the fact that we don’t know whether the note will be converted or not?
Arthur O. Whipple
My guess is that the [28.004] that was outstanding at the end of the year will probably stay where it is which is the existing PLX Shares. We’ve issued an additional 5.6 million which will be outstanding for the entire period and then the remaining 3.4 million shares that would happen in the conversion, even if the conversion happens, it will be very late in the quarter or just after that. So, I think what you want to be looking at is 28 plus 5.6.
Richard Shannon – Northland Sec
Any timing on when we should see that shareholder meeting, if and when that happens?
Arthur O. Whipple
So we filed the S3 for that item and we are expecting to see some SEC comments and based on the resolution of those comments then we’ll go out and do all the things that we need to get the vote set up. So, I would expect sometime in the next few weeks.
Operator
Your next question comes from Michael Wasserman – Moors & Cabot.
Michael Wasserman – Moors & Cabot
I have a question on the Oxford valuation. If my understanding is correct, Oxford over the past few years had been seeking something in the range of $100 million for their business. If I go back and look at your average stock price for the past several years excluding the most recent six months, I might say that the average stock price of PLX was around $9.
Given that we’re going to be issuing, if the shareholders approve it, about 9 million shares in this transaction, one could estimate I think that the valuation based on the average stock price would be about $81 million or $90 million give or take a bit, sort of comparable to what Oxford had been seeking in its hay day. I guess my question is how comfortable are we that we paid the right price given that we’re sort of paying what they were looking for yet we’ve seen a significant down turn in business generally?
Arthur O. Whipple
I think you’re taking one side of one side and the other of the other. I don’t think you can put the $9 stock price together with today’s environment. We’re talking about a very different world. Basically we were able to buy these guys for substantially less than one times revenue. We think their gross margins are good and we think they have great growth potential so we actually think we got quite a good deal on this acquisition.
Michael Wasserman – Moors & Cabot
I guess I was referencing your share price now versus your share price over a few years, any comment on that part of the equation?
Arthur O. Whipple
There were various points at which Oxford was trying to sell itself over the years and all of the numbers about what they were trying to get were rumors but they were in that order of $100 million. But, I think the world is a different place today.
Ralph H. Schmitt
I think you have to look at the valuation in comparison to how our company is valued at the time. If you do that, and you look at fundamentally that this transaction, if it is a fully stock transaction will happen let’s say south of $20 million. It is based on the fact that our valuation is in that similar vein so it’s an apples-to-apples comparison.
I understand how you’re looking at it but I can’t, how do I say, time base judge this looking historically. I have to look at and deal with the situation that it is for us today. Then, look at will this entity that we acquired add value to the shareholders over a period of time that’s let say comparable to the value that PLX has, better or worse. We think it’s comparable to better or we wouldn’t have done the deal.
Operator
Your next question comes from Christian Schwab – Craig-Hallum Capital.
Christian Schwab – Craig-Hallum Capital
Do you think that there is anything happening within the Oxford business or the PLXT business where they would grow in 2009 in an absolute number less than the industry?
Ralph H. Schmitt
We don’t believe so. I’ve seen numerous industry projections but it’s interesting you picked that metric because it’s one that I drive home with the team here all the time which is our expectation is to be growing or not growing fast or faster than the industry at this point. As I mentioned to you, there are a couple of product areas that are new which should give us an uplift in revenue, NAS being on in particular.
Christian Schwab – Craig-Hallum Capital
So if I do some quick back of the envelope math, most people seem to come to a 30% number these days on the year-over-year decline for semiconductors as an industry in 2009. That would suggest that on a combined based you guys could do almost $83 million of revenue in 2009 which would equate to a very significant recovery on the top line over the course of the year if that industry number is accurate. Am I thinking about that correct?
Ralph H. Schmitt
You’re thinking about that correctly but if you do those numbers, and I’ve got a rough idea of where you are, none of the quarters of the year even remotely approach the first or second quarter of 2008. They get back to, if you’re lucky, the fourth quarter combined. That’s about where it gets back to based on the way you looked at it so it’s not a massive recovery on the back half of the year.
Operator
It appears that’s all the questions that we have in our question queue for today. I’d like to turn the call back over to your hosts for any additional or closing remarks.
Ralph H. Schmitt
We want to thank you all for joining us today. We’re obviously facing difficult economic times that continue to affect our Q1 outlook. PLX is a company with a culture of action, if that hasn’t been proven to you today since we’ve already taken steps to reduce spending while protecting the core business. We’ve taken swift actions to ensure the Oxford transaction is successful and meets the financial cost targets described to the investors when we did the transaction.
Our overall supply chain has tightened as inventory at our customers and channel partners are at all time lows. Our market position is solid and we continue to invest in next generation products to drive growth as we build on our market leading position in PCI Express switching and consumer storage. The premise of these businesses remain the same and will drive strong revenue growth in the long term.
It’s our belief that this will drive significant shareholder value. Art and I want to thank you for your time and support for PLX.
Operator
This does conclude today’s teleconference. You may now disconnect and have a great day.
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